AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 2002.
REGISTRATION NO. -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
COOPER INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<Table>
OHIO 3640 31-4156620
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</Table>
---------------------
600 TRAVIS, SUITE 5800
HOUSTON, TEXAS 77002-1001
(713) 209-8400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
CO-REGISTRANT AND GUARANTOR
COOPER INDUSTRIES, LTD.
(Exact name of co-registrant as specified in its charter)
<Table>
BERMUDA 3640 98-0355628
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
600 TRAVIS, SUITE 5800
HOUSTON, TEXAS 77002-1001
(713) 209-8400
(Address, including zip code, and telephone number,
including area code, of co-registrant's principal executive offices)
---------------------
<Table>
DIANE K. SCHUMACHER, ESQ. COPY TO:
SENIOR VICE PRESIDENT AND JEFFREY J. MARGULIES, ESQ.
GENERAL COUNSEL SQUIRE, SANDERS & DEMPSEY L.L.P.
COOPER INDUSTRIES, INC. 4900 KEY TOWER
600 TRAVIS, SUITE 5800 127 PUBLIC SQUARE
HOUSTON, TEXAS 77002-1001 CLEVELAND, OHIO 44114-1304
(713) 209-8400 (216) 479-8500
</Table>
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
5.25% Senior Notes due 2007(2)............. $300,000,000 100% $300,000,000 $27,600
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
(2) Including the guarantee of the 5.25% Senior Notes due 2007 by Cooper
Industries, Ltd.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
OFFER TO EXCHANGE
5.25% SENIOR NOTES DUE 2007
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
FOR ALL OUTSTANDING
5.25% SENIOR NOTES DUE 2007
($300 MILLION AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
OF
COOPER LOGO
COOPER INDUSTRIES, INC.
(All Notes Guaranteed by Cooper Industries, Ltd.)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 2002, UNLESS EXTENDED.
- The exchange notes are being registered with the Securities and Exchange
Commission and are being offered in exchange for the original notes that
were previously issued in an offering exempt from the registration
requirements under the federal securities laws. The terms of the exchange
offer are summarized below and more fully described in this prospectus.
- We will exchange all original notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- You may withdraw tenders of original notes at any time prior to the
expiration of the exchange offer.
- The terms of the exchange notes will be substantially identical to the
terms of the original notes, except that the exchange notes are
registered under the Securities Act and the transfer restrictions and
registration rights applicable to the original notes will not apply to
the exchange notes.
- Our parent, Cooper Industries, Ltd., guaranteed the original notes and
will guarantee the exchange notes.
- We will not receive any proceeds from the exchange offer.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
, 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR CONTAINED
IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH
DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT
INFORMATION, YOU SHOULD NOT RELY ON IT. YOU SHOULD NOT ASSUME THAT THE
INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE AFTER THE
DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
----------------------------------------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
Notice to New Hampshire residents..... i
Forward-looking statements............ i
Where you can find more information... ii
Incorporation of certain documents by
reference........................... iii
Enforcement of judgments and service
of process.......................... iv
Prospectus summary.................... 1
Use of proceeds....................... 9
Capitalization........................ 9
Selected historical consolidated
financial data...................... 10
</Table>
<Table>
<Caption>
PAGE
The exchange offer.................... 12
Business.............................. 21
Description of notes.................. 26
Registration rights; exchange offer... 42
Certain tax considerations............ 45
Plan of distribution.................. 50
Legal matters......................... 50
Experts............................... 51
Index to consolidated financial
statements.......................... F-i
</Table>
Unless the context requires otherwise, references to "we," "us" or "our" refer
collectively to Cooper Industries, Ltd. (a Bermuda company) and its consolidated
subsidiaries, including Cooper Industries, Inc., the Ohio corporation that until
May 22, 2002 was the parent corporation for all historical operations.
----------------------------------------------------------------
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT
A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
----------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This prospectus and the documents that we incorporate by reference contain
certain statements that we believe may be forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. We generally indicate these statements by words
or phrases such as "anticipate," "estimate," "plan," "expect," "believe,"
"intend," "foresee" and similar words or phrases. Forward-looking statements
include, among other things, statements regarding facility consolidations and
cost reduction programs, the anticipated debt-to-capitalization ratio, potential
liability exposure resulting from Federal-Mogul Corporation's bankruptcy filing,
the anticipated benefits of Cooper's recent reorganization to reincorporate in
Bermuda and any statements
i
regarding future revenues, earnings, cash flows and expenditures. All of these
forward-looking statements are subject to risks, uncertainties and assumptions.
Consequently, actual events and results may vary significantly from those
included in or contemplated or implied by our forward-looking statements. The
forward-looking statements included in this prospectus or the relevant
incorporated document are made only as of the date of this prospectus or the
relevant incorporated document, as the case may be, and, except as required by
law, we undertake no obligation to publicly update these forward-looking
statements to reflect subsequent events or circumstances. Important factors that
could cause actual results to differ materially from those suggested by these
forward-looking statements and that could adversely affect our future financial
performance include the following:
- the condition of the domestic economy and European and Latin American
markets;
- spending on commercial and residential construction and by utilities;
- worldwide energy-related project spending;
- demand for products in the electronics and telecommunications markets;
- changes in raw material and energy costs;
- changes in the mix of products sold;
- realization of benefits of cost reduction programs;
- industry competition;
- the timing of facility consolidations and the magnitude of any
disruption from such consolidations;
- changes in tax laws, regulations and treaties;
- the relationship of the U.S. dollar to the currencies of countries in
which we do business;
- mergers and acquisitions and their integration with us;
- the resolution of Federal-Moguls' bankruptcy proceedings; or
- risks related to changing legal and regulatory requirements and
changing market, economic and political conditions in the countries in
which we operate.
The risks and uncertainties identified above are not the only risks we face.
Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial also may adversely affect us. Should any
known or unknown risks and uncertainties develop into actual events, these
developments could have material adverse effects on our business, financial
conditions and results of operations.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You can inspect and
copy, at prescribed rates, these reports, proxy statements and other information
at the public reference facilities of the SEC, in Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on its public reference room. The SEC also maintains a website that
contains reports, proxy statements and other information regarding registrants
that file
ii
electronically with the SEC at http://www.sec.gov. You also can inspect reports
and other information we file at the office of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-4, of which this prospectus is
a part, covering the exchange notes offered by this prospectus. As allowed by
SEC rules, this prospectus does not contain all the information set forth in the
registration statement and the related exhibits. We refer you to the
registration statement and the related exhibits for further information, and
this prospectus is qualified in its entirety by such other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating by reference in this prospectus the documents we file with
the SEC. This means that we are disclosing important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede the information contained in this
prospectus. We are incorporating by reference the following documents:
- Annual Report on Form 10-K for the year ended December 31, 2001;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002
and June 30, 2002;
- Current Reports on Form 8-K dated January 24, 2002 (Item 5 only), April
23, 2002 (Item 5 only), May 14, 2002, May 22, 2002 (Item 5 only), June
21, 2002 (Item 5 only), July 23, 2002 (Item 5 only) and August 6, 2002
(Item 5 only); and
- All documents filed by us with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the offering pursuant to this prospectus.
Any statement contained in a document incorporated by reference, or deemed to be
incorporated by reference, in this prospectus shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed document that
also is incorporated by reference in this prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this prospectus
has been delivered, on the written or oral request of such person, a copy of any
or all of the documents which have been or may be incorporated in this
prospectus by reference (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference in any such documents). You
may request a copy of these filings at the following address and telephone
number:
Cooper Industries, Inc.
600 Travis
Suite 5800
Houston, Texas 77002
Attention: Corporate Secretary
Telephone: 713-209-8400
iii
ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS
The Guarantor is a Bermuda company. The Guarantor has been advised by its
Bermuda counsel, Appleby, Spurling & Kempe, that a judgment for the payment of
money rendered by a court in the United States based on civil liability would
not be automatically enforceable in Bermuda. The Guarantor has also been advised
by Appleby, Spurling & Kempe that a final and conclusive judgment obtained in a
court of competent jurisdiction in the United States under which a sum of money
is payable as compensatory damages may be the subject of an action in the
Supreme Court of Bermuda under the common law doctrine of obligation, by action
on the debt evidenced by the court's judgment. Such an action should be
successful upon proof that the sum of money is due and payable, and without
having to prove the facts supporting the underlying judgment, as long as:
- the court that gave the judgment was competent to hear the action in
accordance with private international law principles as applied by the
courts in Bermuda; and
- the judgment is not contrary to public policy in Bermuda, was not
obtained by fraud or in proceedings contrary to natural justice of
Bermuda and is not based on an error in Bermuda law.
A Bermuda court may impose civil liability on the Guarantor or its directors or
officers in a suit brought in the Supreme Court of Bermuda against the Guarantor
or such persons with respect to facts that constitute a violation of U.S.
federal securities laws, provided that the facts surrounding such violation
would constitute or give rise to a cause of action under Bermuda law.
Since the Guarantor is a Bermuda company, it may be difficult for you to effect
service of process within the United States or to enforce judgments obtained
against the Guarantor in U.S. courts. The Guarantor will irrevocably agree that
it may be served with process with respect to actions based on offers and sales
of securities made in the United States and other violations of U.S. securities
laws by having Cooper Industries, Inc. located at 600 Travis, Suite 5800,
Houston, Texas 77002-1001, be its U.S. agent appointed for that purpose.
iv
PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus and may not
contain all of the information that may be important to you. This prospectus
includes specific terms of the exchange notes we are offering in the exchange
offer, as well as information regarding the exchange offer and our business. We
encourage you to read this entire prospectus and the other documents that are
referenced in this prospectus.
ABOUT COOPER INDUSTRIES, LTD.
We are a diversified, worldwide manufacturing company doing business in two
business segments: Electrical Products and Tools & Hardware. We have over 100
manufacturing facilities and approximately 30,500 employees in the United States
and more than 20 foreign countries.
ELECTRICAL PRODUCTS
Our Electrical Products segment produces, markets and sells electrical and
electronic distribution and circuit protection products and lighting fixtures
for use in residential, commercial and industrial construction, maintenance and
repair. In addition, the segment produces and markets products for use by
utilities and industries for primary electrical power distribution and control.
Some of this segment's major products include:
- B-Line(R) support systems, enclosures and fasteners;
- Buss(R), Bussmann(R) and Edison(R) fuses;
- Cooper Power Systems(R) distribution transformers, power capacitors,
voltage regulators and surge arrestors;
- Cooper Wiring Devices circuit protective devices;
- Crouse-Hinds(R) and CEAG(R) electrical construction materials;
- Crouse-Hinds(R), Fail-Safe(TM), Halo(R) and Metalux(R) lighting
fixtures;
- Eagle(R) wiring devices, sockets and switches;
- Menvier(R) emergency lighting and fire detection systems;
- Kyle(R) distribution switchgear; and
- McGraw-Edison(R) and RTE(R) power distribution transformers and related
products.
TOOLS & HARDWARE
Our Tools & Hardware segment produces, markets and sells tools and hardware
items for use in residential, commercial and industrial construction,
maintenance and repair, and for general industrial and consumer use. Some of
this segment's major products include:
- Campbell(R) chain products;
- Crescent(R) pliers and wrenches;
- Diamond(R) horseshoes and farrier tools;
- Lufkin(R) measuring tapes;
- Nicholson(R) files and saws;
- Plumb(R) hammers;
- Weller(R) soldering equipment;
- Wiss(R) scissors;
- Xcelite(R) screwdrivers; and
- Buckeye(R), DGD(TM), Dotco(R) and Master Power(R) power tools.
1
RECENT DEVELOPMENTS
On May 22, 2002, we completed a reorganization by which Cooper Industries, Inc.,
the Ohio corporation that was the parent company for all historical operations
and is referred to in this prospectus as "Cooper," became a wholly-owned,
indirect subsidiary of Cooper Industries, Ltd., a Bermuda company that is
referred to in this prospectus as the "Guarantor." In the transaction each
outstanding share of Cooper stock was automatically converted into a Class A
common share of the Guarantor, such that the Guarantor replaced Cooper as the
publicly-traded parent company. The Class A common shares of the Guarantor are
traded on the New York Stock Exchange under the symbol "CBE." As a general
matter, the merger did not affect the conduct of operations of the historical
business.
The consolidated financial statements included and incorporated by reference in
this prospectus for all reporting periods through the 2002 first quarter are the
financial statements of Cooper and its consolidated subsidiaries. Commencing
with the 2002 second quarter, such consolidated financial statements are the
financial statements of the Guarantor and its consolidated subsidiaries,
including Cooper. The reorganization was accounted for as a reorganization of
entities under common control, which did not result in changes in the historical
consolidated carrying amount of assets, liabilities and shareholders' equity.
We believe that reorganizing as a Bermuda corporation will allow us to implement
our business strategy more effectively. A significant portion of our business is
currently, and we believe in the future a greater portion will be, generated
from non-U.S. markets. We believe the reorganization will allow us to take
advantage of financial and other business opportunities that were not available
under our former corporate structure, including:
- Improving our worldwide effective tax rate;
- Maximizing our potential business growth and cash flow;
- Using the greater cash flow to invest for further earnings growth,
including by developing higher-growth product lines and acquiring
complementary higher-growth electrical and electronic businesses;
- Strengthening our position vis-a-vis competitors in the global
marketplace; and
- Expanding our investor base as our shares may become more attractive to
non-U.S. investors.
We believe that the reorganization should improve our global tax position and
should maximize potential growth and cash flow. We anticipate that the
reorganization may result in significant tax savings. These savings are expected
to result in a reduction of our annual effective tax rate from approximately 32%
to within a range from 20% to 25% over the next several years due to the
reorganization. However, our tax rate will depend on, among other things, the
level and geographic mix of our earnings and changes and interpretations with
respect to tax laws, treaties and policies in the jurisdictions where we
operate, which may reduce or eliminate any improvements in our global tax
position. Accordingly, our actual effective tax rate may vary materially from
our expectation.
It is important to note that several members of the U.S. Congress have
introduced legislation that, if enacted, would have the effect of substantially
reducing or eliminating the anticipated tax benefits of the reorganization. As a
result, changes in tax laws, tax treaties or tax regulations may occur, with
prospective or retroactive effect, that would have a material adverse effect on
the anticipated tax benefits of the reorganization.
2
THE EXCHANGE OFFER
On June 21, 2002, we completed the private offering of $300 million aggregate
principal amount of 5.25% Senior Notes due 2007. As part of that offering of
original notes, we agreed to undertake an exchange offer for the original notes.
The following summary contains basic information about the exchange offer. It
may not contain all the information that is important to you. For a more
complete understanding of the exchange offer, we encourage you to read this
entire prospectus and the other documents to which we refer.
SECURITIES OFFERED............ $300 million aggregate principal amount of new
5.25% Senior Notes due 2007, which have been
registered under the Securities Act. The form
and terms of these exchange notes are identical
in all material respects to those of the
original notes. The exchange notes, however,
will not contain transfer restrictions and
registration rights applicable to the original
notes.
THE EXCHANGE OFFER............ We are offering to exchange $1,000 principal
amount of our new 5.25% Senior Notes due 2007
for each $1,000 principal amount of our
outstanding 5.25% Senior Notes due 2007.
In order to be exchanged, an original note must
be properly tendered and accepted. All original
notes that are validly tendered and not
withdrawn will be exchanged. As of the date of
this prospectus, there is $300 million in
aggregate principal amount of original notes
outstanding.
EXPIRATION DATE............... 5:00 p.m., New York City time, on ,
2002 unless we extend the expiration date.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND ORIGINAL
NOTES......................... The exchange notes will bear interest from the
most recent date to which interest has been
paid on the original notes, or if no interest
has been paid on the original notes, from the
date of issue of the original notes.
CONDITIONS TO THE EXCHANGE
OFFER......................... The exchange offer is subject to customary
conditions. We may assert or waive these
conditions in our sole discretion. If we
materially change the terms of the exchange
offer, we will resolicit tenders of the
original notes. See "The exchange
offer -- Conditions to the exchange offer."
PROCEDURES FOR TENDERING
ORIGINAL NOTES................ Except as described under the heading "The
exchange offer -- Guaranteed delivery
procedures," a tendering holder must, on or
prior to the expiration date:
- transmit a properly completed and duly
executed letter of transmittal, together with
all other documents
3
required by the letter of transmittal, to the
exchange agent, JPMorgan Chase Bank, at the
address listed in this prospectus; or
- if original notes are tendered in accordance
with the book-entry procedures described in
this prospectus, the tendering holder must
transmit an agent's message to the exchange
agent at the address listed in this
prospectus.
See "The exchange offer -- Procedures for
tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS............ If you are the beneficial holder of original
notes that are registered in the name of your
broker, dealer, commercial bank, trust company
or other nominee, and you wish to tender
original notes in the exchange offer, you
should promptly contact the person in whose
name your original notes are registered and
instruct that person to tender on your behalf.
See "The exchange offer -- Procedures for
tendering."
GUARANTEED DELIVERY
PROCEDURES.................... If you wish to tender your original notes and
you cannot deliver your original notes, the
letter of transmittal or any other required
documents to the exchange agent before the
expiration date, you may tender your original
notes by following the guaranteed delivery
procedures under the heading "The exchange
offer -- Guaranteed delivery procedures."
WITHDRAWAL RIGHTS............. Tenders of original notes may be withdrawn at
any time before 5:00 p.m., New York City time,
on the expiration date.
ACCEPTANCE OF ORIGINAL NOTES
AND DELIVERY OF EXCHANGE
NOTES......................... Subject to the conditions stated under the
heading "The exchange offer -- Conditions to
the exchange offer," we will accept for
exchange any and all original notes that are
properly tendered in the exchange offer and not
withdrawn before 5:00 p.m., New York City time,
on the expiration date. The exchange notes will
be delivered promptly after the expiration
date. See "The exchange offer -- Terms of the
exchange offer."
FEDERAL INCOME TAX
CONSIDERATIONS................ We believe that your exchange of original notes
for exchange notes in the exchange offer will
not result in any gain or loss to you for U.S.
federal income tax purposes. See "Certain tax
considerations."
EXCHANGE AGENT................ JPMorgan Chase Bank is serving as exchange
agent in connection with the exchange offer.
The address and
4
telephone number of the exchange agent are
listed under the heading "The exchange
offer -- Exchange agent."
USE OF PROCEEDS............... We will not receive any cash proceeds from the
issuance of exchange notes in the exchange
offer. We will pay all expenses incident to the
exchange offer. See "Use of proceeds."
5
THE EXCHANGE NOTES
The form and terms of the exchange notes and the original notes are identical in
all material respects, except that transfer restrictions and registration rights
applicable to the original notes will not apply to the exchange notes. The
exchange notes will evidence the same debt as the original notes and will be
governed by the same indenture. When we refer to "notes" in this prospectus, we
are referring to both the original notes and the exchange notes.
ISSUER......................... Cooper Industries, Inc.
GUARANTOR...................... Cooper Industries, Ltd.
EXCHANGE NOTES OFFERED......... $300 million aggregate principal amount of
5.25% Senior Notes due 2007.
MATURITY....................... July 1, 2007.
INTEREST RATE.................. 5.25% per year.
INTEREST PAYMENT DATES......... Each January 1 and July 1, commencing January
1, 2003.
NOTE GUARANTEE................. The original notes are, and the exchange
notes will be, fully and unconditionally
guaranteed by Cooper Industries, Ltd.
RANKING........................ The original notes are, and the exchange
notes will be, senior unsecured debt of
Cooper and rank and will rank equally with
all of Cooper's existing and future senior
unsecured and unsubordinated debt. The
original notes are, and the exchange notes
will be, effectively subordinated to all of
Cooper's existing and future secured debt to
the extent of the assets securing that
indebtedness unless the notes are also
secured by these assets.
The note guarantee relating to the original
notes and to the exchange notes, as the case
may be, is and will be senior unsecured debt
of the Guarantor and rank and will rank
equally with all of the Guarantor's existing
and future senior unsecured and
unsubordinated debt. The note guarantee is
and will be effectively subordinated to the
Guarantor's existing and future secured debt
to the extent of the assets securing that
indebtedness unless the note guarantee also
is secured by these assets.
REDEMPTION..................... We may redeem all, but not part, of the notes
upon the occurrence of a specified tax event
at the redemption price described under the
caption "Description of notes -- Optional
redemption for tax reasons." The notes are
not otherwise subject to optional or
mandatory redemption.
CERTAIN COVENANTS.............. The original notes were issued, and the
exchange notes will be issued, under an
indenture with JPMorgan Chase Bank, as
trustee. The indenture governing the notes
6
contains, among other things, covenants
limiting our ability and the ability of
certain of our subsidiaries to:
- create liens; and
- engage in sale-leaseback transactions.
Additionally, the indenture limits the
ability of the Guarantor and Cooper to
consolidate, merge or convey or transfer
properties and assets substantially as an
entirety.
These covenants are subject to important
exceptions and qualifications described under
"Description of notes -- Certain covenants."
RESALES........................ Based on interpretations by the staff of the
SEC, as detailed in a series of no-action
letters issued by the SEC to third parties,
we believe that the exchange notes issued in
the exchange offer may be offered for resale,
resold or otherwise transferred by you
without compliance with the registration and
prospectus delivery requirements of the
Securities Act as long as:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to
participate, in a distribution of the
exchange notes; and
- you are not an "affiliate" of ours.
If you are an affiliate of ours, are engaged
in or intend to engage in or have any
arrangement or understanding with any person
to participate in the distribution of the
exchange notes:
- you cannot rely on the applicable
interpretations of the staff of the SEC;
and
- you must comply with the registration
requirements of the Securities Act in
connection with any resale transaction.
Each broker or dealer that receives exchange
notes for its own account in exchange for
original notes that were acquired as a result
of market-making or other trading activities
must acknowledge that it will comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any offer to resell, resale,
or other transfer of the exchange notes
issued in the exchange offer, including the
delivery of a prospectus that contains
information with respect to any selling
7
holder required by the Securities Act in
connection with any resale of the exchange
notes.
Furthermore, any broker-dealer that acquired
any of its original notes directly from us:
- may not rely on the applicable
interpretations of the staff of the SEC
contained in Exxon Capital Holdings Corp.,
SEC no-action letter (May 13, 1988);
Morgan, Stanley & Co. Inc., SEC no-action
letter (June 5, 1991); and Shearman &
Sterling, SEC no-action letter (July 2,
1993); and
- must also be named as a selling noteholder
in connection with the registration and
prospectus delivery requirements of the
Securities Act relating to any resale
transaction.
ADDITIONAL INFORMATION
The principal executive offices of Cooper and the Guarantor are located at 600
Travis, Suite 5800, Houston, Texas 77002 (telephone number: (713) 209-8400).
8
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. In consideration
for issuing the exchange notes, we will receive in exchange original notes of
like principal amount, the terms of which are identical in all material respects
to the exchange notes. The original notes surrendered in exchange for exchange
notes will be retired and canceled. Accordingly, issuance of the exchange notes
will not result in any increase in our indebtedness. We have agreed to bear the
expenses of the exchange offer. No underwriter is being used in connection with
the exchange offer.
On June 21, 2002, we issued and sold the original notes. We used the net
proceeds from that offering, which after discounts to the initial purchasers and
other transaction fees and expenses approximated $298 million, to repay a
portion of our outstanding commercial paper obligations, which we use as our
principal source of short-term financing. As of March 31 and June 30, 2002, our
respective outstanding commercial paper balances were $391 and $104 million,
with weighted average interest rates of 2.39% and 2.33%.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2002, which
gives effect to the offering of the original notes and the application of the
net proceeds from the sale of the original notes as described under "Use of
proceeds" above. The table should be read together with the other information
contained in this prospectus under the caption "Use of proceeds" and with
management's discussion and analysis of financial condition and results of
operations and the consolidated financial statements and related notes included
and incorporated by reference in this prospectus.
<Table>
<Caption>
JUNE 30, 2002
- ---------------------------------------------------------------------------
(IN MILLIONS)
- ---------------------------------------------------------------------------
(UNAUDITED)
SHORT-TERM DEBT
Short-term debt............................................. $ 9.4
Current maturities of long-term debt........................ 218.7
--------
Total short-term debt....................................... 228.1
LONG-TERM DEBT
Original notes.............................................. 300.0
Other long-term debt........................................ 794.0
--------
Total long-term debt........................................ 1,094.0
Total Debt.................................................. 1,322.1
SHAREHOLDERS' EQUITY........................................ 2,054.6
--------
Total Capitalization........................................ $3,376.7
========
- ---------------------------------------------------------------------------
</Table>
9
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial data
regarding each of the five years in the period ended December 31, 2001 and the
six-month periods ended June 30, 2002 and 2001. The data were derived from the
audited consolidated financial statements and the related notes as of and for
the five years ended December 31, 2001 and the unaudited interim consolidated
financial statements as of and for the six months ended June 30, 2002 and 2001.
In the opinion of management, the unaudited interim consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the results of operations and financial
position as of the dates and for the periods presented. The results of
operations for the six months ended June 30, 2002 are not necessarily indicative
of results that may be expected for any other interim period or for the full
year ending December 31, 2002. This data should be read in conjunction with
management's discussion and analysis of financial condition and results of
operations and the audited consolidated financial statements and unaudited
interim consolidated financial statements, including the related notes, included
and incorporated by reference in this prospectus.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
(IN MILLIONS, EXCEPT RATIOS) 2001 2000 1999 1998 1997 2002 2001
- --------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:(1)
Revenues.......................... $4,209.5 $4,459.9 $3,868.9 $3,651.2 $3,415.6 $1,976.2 $2,168.1
Cost of sales..................... 2,943.9 3,018.3 2,603.4 2,447.1 2,281.6 1,418.0 1,513.6
Selling and administrative
expenses........................ 729.7 732.9 640.9 616.4 580.5 363.0 385.5
Goodwill amortization(2).......... 60.7 58.5 47.1 43.8 32.4 -- 30.1
Nonrecurring gains................ -- -- -- (135.2) (93.0) -- --
Nonrecurring charges.............. 74.1 -- 3.7 53.6 40.5 -- --
Interest expense, net............. 84.7 100.3 55.2 101.9 90.4 34.3 47.5
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before income
taxes......................... 316.4 549.9 518.6 523.6 483.2 160.9 191.4
Income taxes...................... 55.1 192.5 186.7 187.7 173.2 38.2 67.0
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations.................... 261.3 357.4 331.9 335.9 310.0 122.7 124.4
Income (charge) related to
discontinued operations
(Automotive Products), net of
taxes........................... (30.0) -- -- 87.1 84.6 -- --
-------- -------- -------- -------- -------- -------- --------
Net income...................... $ 231.3 $ 357.4 $ 331.9 $ 423.0 $ 394.6 $ 122.7 $ 124.4
======== ======== ======== ======== ======== ======== ========
INCOME PER COMMON SHARE DATA:
Basic --
Income from continuing
operations.................. $ 2.78 $ 3.82 $ 3.53 $ 2.97 $ 2.64 $ 1.31 $ 1.32
Income from discontinued
operations (Automotive
Products), net of taxes..... (.32) -- -- .77 .72 -- --
-------- -------- -------- -------- -------- -------- --------
Net income...................... $ 2.46 $ 3.82 $ 3.53 $ 3.74 $ 3.36 $ 1.31 $ 1.32
======== ======== ======== ======== ======== ======== ========
Diluted --
Income from continuing
operations.................... $ 2.75 $ 3.80 $ 3.50 $ 2.93 $ 2.57 $ 1.30 $ 1.32
Income from discontinued
operations (Automotive
Products), net of taxes....... (.31) -- -- .76 .69 -- --
-------- -------- -------- -------- -------- -------- --------
Net income...................... $ 2.44 $ 3.80 $ 3.50 $ 3.69 $ 3.26 $ 1.30 $ 1.32
======== ======== ======== ======== ======== ======== ========
CASH DIVIDENDS PER COMMON SHARE... $ 1.40 $ 1.40 $ 1.32 $ 1.32 $ 1.32 $ .70 $ .70
</Table>
10
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
(IN MILLIONS, EXCEPT RATIOS) 2001 2000 1999 1998 1997 2002 2001
- --------------------------------------------------------------------------------------------------------------
RATIO OF EARNINGS TO FIXED
CHARGES(3)...................... 4.1x 5.5x 8.5x 5.6x 5.8x 4.9x 4.3x
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 11.5 $ 26.4 $ 26.9 $ 20.4 $ 30.3 $ 68.2 $ 16.3
Working capital, net(4)........... 727.4 752.3 547.2 550.6 358.2 760.3 804.0
Property, plant and equipment,
net............................. 826.8 870.4 768.0 710.5 673.3 785.8 865.0
Total assets...................... 4,611.4 4,789.3 4,143.4 3,779.1 5,507.3 4,573.5 4,723.0
Total debt........................ 1,300.8 1,518.0 1,087.8 898.9 1,469.5 1,322.1 1,461.8
Shareholders' equity.............. 2,023.2 1,904.2 1,743.1 1,563.6 2,683.5 2,054.6 1,968.2
OTHER DATA:
EBITDA(5)......................... $ 661.6 $ 824.6 $ 725.1 $ 681.4 $ 643.1 $ 255.9 $ 331.7
Depreciation and
amortization(2)................. 186.4 174.4 147.6 137.5 122.0 60.7 92.8
Capital expenditures.............. 115.1 174.9 165.8 142.4 117.3 27.8 69.4
- --------------------------------------------------------------------------------------------------------------
</Table>
(1) In October 1998, we sold our Automotive Products segment for $1.9 billion in
proceeds. The financial information in the above table excludes the 1998 and
1997 results of the Automotive Products segment from income from continuing
operations. The discontinued segment's results are presented separately in the
caption, "Income (charge) related to discontinued operations, net of taxes." A
$30 million charge, net of a $20 million tax benefit, was recorded in 2001
related to potential asbestos obligations associated with the Automotive
Products segment.
(2) On January 1, 2002, we adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets, and, in accordance with this
statement, we no longer amortize goodwill.
(3) The ratio of earnings to fixed charges is computed by dividing earnings
before fixed charges by fixed charges. Earnings before fixed charges consist of
income from continuing operations before income taxes plus fixed charges, less
capitalized interest, plus equity in earnings (losses) of less than 50% owned
companies. Fixed charges consist of interest, whether expensed or capitalized,
amortized capitalized expenses related to indebtedness, and the portion of
operating lease rental expense that represents the interest factor.
(4) Working capital, net is defined as current assets excluding cash and cash
equivalents minus current liabilities excluding short-term debt and current
maturities of long-term debt.
(5) EBITDA is defined as income from continuing operations before interest,
taxes, depreciation and amortization and nonrecurring gains and charges. EBITDA
is not a measure of operating income, operating performance or liquidity under
generally accepted accounting principles ("GAAP"). We include EBITDA data
because this data is used by some investors to determine our historical ability
to service our indebtedness. Nevertheless, this measure should not be considered
in isolation or as a substitute for operating income (as determined in
accordance with GAAP) as an indicator of our performance, or to cash flows from
operating activities (as determined in accordance with GAAP) as a measure of
liquidity. In addition, it should be noted that companies calculate EBITDA
differently and therefore EBITDA as presented for us may not be comparable to
EBITDA reported by other companies.
11
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
As of the date of this prospectus, $300 million aggregate principal amount of
the original notes is outstanding. This prospectus, together with the letter of
transmittal, is being sent to all holders of original notes known to us. Our
obligation to accept original notes for exchange in the exchange offer is
subject to the conditions described below under "-- Conditions to the exchange
offer."
Upon the terms and conditions described in this prospectus and in the
accompanying letter of transmittal, we will accept for exchange original notes
that are properly tendered on or before the expiration date and not withdrawn as
permitted below. For each original note accepted for exchange, the holder of the
original note will receive an exchange note having a principal amount equal to
that of the surrendered original note. Original notes tendered in the exchange
offer must be in denominations of the principal amount of $1,000 and any
integral multiple of $1,000.
As used in this prospectus, the term "expiration date" means 5:00 p.m., New York
City time, on , 2002. However, if we, in our sole discretion, extend
the period of time for which the exchange offer is open, the term "expiration
date" means the latest time and date to which we extend the exchange offer. We
reserve the right to extend the period of time during which the exchange offer
is open. If the exchange offer period is extended, we would give notice of the
extension to the holders of original notes by means of a press release or other
public announcement no later than 9:00 a.m., New York City time, on the next
business day following the previously scheduled expiration date. During any
extension period, all original notes previously tendered will remain subject to
the exchange offer and may be accepted for exchange by us. Any original notes
not accepted for exchange will be returned to the tendering holder after the
expiration or termination of the exchange offer.
We reserve the right to amend or terminate the exchange offer, and not to accept
for exchange any original notes not previously accepted for exchange, upon the
occurrence of any of the conditions of the exchange offer specified below under
"-- Conditions to the exchange offer." We will give notice of any amendment,
non-acceptance or termination to the holders of the original notes as described
above. If we materially change the terms of the exchange offer, we will
resolicit tenders of the original notes and provide notice to the noteholders.
If the change is made less than five business days before the expiration of the
exchange offer, we will extend the offer so that the noteholders have at least
five business days to tender or withdraw.
Our acceptance of the tender of original notes by a tendering holder will form a
binding agreement upon the terms and subject to the conditions provided in this
prospectus and in the accompanying letter of transmittal.
PROCEDURES FOR TENDERING
Except as described below, a tendering holder must, on or prior to the
expiration date:
- transmit a properly completed and duly executed letter of transmittal,
including all other documents required by the letter of transmittal, to
JPMorgan Chase Bank at the address listed below under the heading
"-- Exchange agent"; or
12
- if original notes are tendered in accordance with the book-entry
procedures listed below, transmit an agent's message to the exchange
agent at the address listed below under the heading "-- Exchange agent."
In addition:
- the exchange agent must receive, on or before the expiration date, any
certificates for the original notes or a timely confirmation of
book-entry transfer of the original notes into the exchange agent's
account at the Depository Trust Company, the book-entry transfer
facility; or
- the holder must comply with the guaranteed delivery procedures
described below.
The Depository Trust Company will be referred to as DTC in this prospectus.
The term "agent's message" means a message, transmitted to DTC and received by
the exchange agent and forming a part of a book-entry transfer, that states that
DTC has received an express acknowledgment that the tendering holder agrees to
be bound by the letter of transmittal and that we may enforce the letter of
transmittal against this holder.
The method of delivery of original notes, letters of transmittal and all other
required documents is at your election and risk. In all cases, you should allow
sufficient time to assure timely delivery to the exchange agent. You should not
send any letter of transmittal, original notes or other related documentation to
us.
If you are a beneficial owner whose original notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee, and wish to
tender original notes, you should promptly instruct the registered holder to
tender on your behalf. Any registered holder that is a participant in DTC's
book-entry transfer facility system may make book-entry delivery of the original
notes by causing DTC to transfer the original notes into the exchange agent's
account.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the original notes surrendered for exchange are tendered:
- by a registered holder of the original notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
- for the account of an "eligible institution."
If signatures on a letter of transmittal or a notice of withdrawal are required
to be guaranteed, the guarantees must be by an "eligible institution." An
"eligible institution" is a financial institution -- including most banks,
savings and loan associations and brokerage houses -- that is a participant in
the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion Program.
We will determine in our sole discretion all questions as to the validity, form
and eligibility of original notes tendered for exchange. This discretion extends
to the determination of all questions concerning the timing of receipts and
acceptance of tenders. These determinations will be final and binding.
We reserve the right to reject any particular original note not properly
tendered or the acceptance of which might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the right to waive any defects or
irregularities or conditions of the exchange offer as to
13
any particular original note either before or after the expiration date,
including the right to waive the ineligibility of any tendering holder. Our
interpretation of the terms and conditions of the exchange offer as to any
particular original note either before or after the expiration date, including
the letter of transmittal and the instructions to the letter of transmittal,
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of original notes must be cured within
a reasonable period of time. Neither we, the exchange agent nor any other person
will be under any duty to give notification of any defect or irregularity in any
tender of original notes. Nor will we, the exchange agent or any other person
incur any liability for failing to give notification of any defect or
irregularity.
If the letter of transmittal is signed by a person other than the registered
holder of original notes, the letter of transmittal must be accompanied by a
written instrument of transfer or exchange in satisfactory form duly executed by
the registered holder with the signature guaranteed by an eligible institution.
The original notes must be endorsed or accompanied by appropriate powers of
attorney. In either case, the original notes must be signed exactly as the name
of any registered holder appears on the original notes.
If the letter of transmittal or any original notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless waived by us,
proper evidence satisfactory to us of their authority to so act must be
submitted.
By tendering, each holder will represent to us that, among other things,
- the exchange notes are being acquired in the ordinary course of
business of the person receiving the exchange notes, whether or not that
person is the holder, and
- neither the holder nor the other person has any arrangement or
understanding with any person to participate in the distribution of the
exchange notes.
In the case of a holder that is not a broker-dealer, that holder, by tendering,
will also represent to us that the holder is not engaged in and does not intend
to engage in a distribution of the exchange notes.
If any holder or other person is an "affiliate" of ours, as defined under Rule
405 of the Securities Act, or is engaged in, or intends to engage in, or has an
arrangement or understanding with any person to participate in, a distribution
of the exchange notes, that holder or other person cannot rely on the applicable
interpretations of the staff of the SEC and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction.
Each broker-dealer that receives exchange notes for its own account in exchange
for original notes, where the original notes were acquired by it as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus that meets the requirements of the Securities Act in
connection with any resale of the exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. See "Plan of distribution."
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer, we
will accept, promptly after the expiration date, all original notes properly
tendered and not withdrawn.
14
We will issue the exchange notes promptly after acceptance of the original
notes. See "--Conditions to the exchange offer" below. For purposes of the
exchange offer, we will be deemed to have accepted properly tendered original
notes for exchange when, as and if we have given oral or written notice to the
exchange agent, with prompt written confirmation of any oral notice.
The exchange notes will bear interest from the most recent date to which
interest has been paid on the original notes, or if no interest has been paid on
the original notes, from the date of issue of the original notes. Holders whose
original notes are accepted for exchange will be deemed to have waived the right
to receive interest accrued on the original notes.
Unaccepted or non-exchanged original notes will be returned without expense to
the tendering holder of the original notes. In the case of original notes
tendered by book-entry transfer in accordance with the book-entry procedures
described below, the non-exchanged original notes will be credited to an account
maintained with the book-entry transfer facility as promptly as practicable
after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the original
notes at DTC for purposes of the exchange offer promptly after commencement of
the exchange offer. Any financial institution that is a participant in DTC's
system must make book-entry delivery of original notes by causing DTC to
transfer those original notes into the exchange agent's account at DTC in
accordance with DTC's procedure for transfer. The participant should transmit
its acceptance to DTC on or prior to the expiration date or comply with the
guaranteed delivery procedures described below. DTC will verify this acceptance,
execute a book-entry transfer of the tendered original notes into the exchange
agent's account at DTC and then send to the exchange agent confirmation of the
book-entry transfer. The confirmation of the book-entry transfer will include an
agent's message confirming that DTC has received an express acknowledgment from
the participant that the participant has received and agrees to be bound by the
letter of transmittal and that we may enforce the letter of transmittal against
the participant. Delivery of exchange notes issued in the exchange offer may be
effected through book-entry transfer at DTC. However, the letter of transmittal
or facsimile of it or an agent's message, with any required signature guarantees
and any other required documents, must:
- be transmitted to and received by the exchange agent at the address
listed below under "-- Exchange agent" on or prior to the expiration
date; or
- comply with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of original notes desires to tender the original notes,
and the original notes are not immediately available, or time will not permit
the holder's original notes or other required documents to reach the exchange
agent before the expiration date, or the procedure for book-entry transfer
described above cannot be completed on a timely basis, a tender may nonetheless
be made if:
- the tender is made through an eligible institution;
15
- prior to the expiration date, the exchange agent received from an
eligible institution a notice of guaranteed delivery, substantially in
the form provided by us, by facsimile transmission, mail or hand
delivery,
(1) stating the name and address of the holder of original notes and
the amount of original notes tendered,
(2) stating that the tender is being made and
(3) guaranteeing that within three New York Stock Exchange trading days
after the expiration date, the certificates for all physically tendered
original notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed
and duly executed letter of transmittal, or a facsimile of the letter
of transmittal, and any other documents required by the letter of
transmittal, will be deposited by the eligible institution with the
exchange agent; and
- the certificates for all physically tendered original notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, a
properly completed and duly executed letter of transmittal, or a
facsimile of the letter of transmittal, and all other documents required
by the letter of transmittal, are received by the exchange agent within
three New York Stock Exchange trading days after the expiration date.
WITHDRAWAL RIGHTS
Tenders of original notes may be withdrawn at any time before 5:00 p.m., New
York City time, on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a written
notice of withdrawal at the address or, in the case of eligible institutions, at
the facsimile number, indicated below under "-- Exchange agent" before 5:00
p.m., New York City time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person, referred to as the depositor, having
tendered the original notes to be withdrawn;
- identify the original notes to be withdrawn, including the certificate
number or numbers and principal amount of the original notes;
- contain a statement that the holder is withdrawing its election to have
the original notes exchanged;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the original
notes register the transfer of the original notes in the name of the
person withdrawing the tender; and
- specify the name in which the original notes are registered, if
different from that of the depositor.
If certificates for original notes have been delivered or otherwise identified
to the exchange agent, then prior to the release of these certificates the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and signed notice of withdrawal with signatures
guaranteed by an eligible institution unless this holder is an eligible
institution. If original notes have been tendered in accordance with the
procedure for
16
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn original notes. We will determine all questions as
to the validity, form and eligibility, including time of receipt, of notices of
withdrawal. Any original notes so withdrawn will be deemed not to have been
validly tendered for exchange. No exchange notes will be issued unless the
original notes so withdrawn are validly re-tendered. Properly withdrawn original
notes may be re-tendered by following the procedures described under
"-- Procedures for tendering" above at any time on or before 5:00 p.m., New York
City time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept original notes for exchange, or to issue exchange notes in
exchange for any original notes, and may terminate or amend the exchange offer,
if at any time before the acceptance of the original notes for exchange or the
issuance of the exchange notes for the original notes:
- there has been instituted any proceeding seeking to restrain or
prohibit the making or completion of the exchange offer, or assessing or
seeking any damages as a result of the exchange offer, or resulting in a
material delay in our ability to accept for exchange or exchange some or
all of the original notes in the exchange offer; or
- any action shall have been taken, proposed or threatened by any
governmental authority, domestic or foreign, that in our sole judgment
might directly or indirectly result in any of such consequences or, in
our sole judgment, might result in the holders of exchange notes having
obligations with respect to resales and transfers of exchange notes which
are greater than those described in the interpretations of the SEC staff
referred to in this prospectus, or would otherwise make it inadvisable to
proceed with the exchange offer; or
- there shall have occurred:
- any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market; or
- any limitation by a governmental authority which may adversely affect
our ability to complete the transactions contemplated by the exchange
offer; or
- a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the extension
of credit; or
- a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the preceding events existing at the
time of the commencement of the exchange offer, a material acceleration
or worsening of these calamities; or
- any change, or any development involving a prospective change, shall
have occurred or be threatened in our business, financial condition,
operations or prospects and those of our subsidiaries taken as a whole
that is or may be adverse to us, or we shall have become aware of facts
that have or may have an adverse impact on the value of the original
notes or the exchange notes; which in our sole judgment in any case makes
it inadvisable to proceed with the exchange offer and/or with such
acceptance for exchange or with such exchange.
17
These conditions to the exchange offer are to our sole benefit and we may assert
them regardless of the circumstances giving rise to any of these conditions, or
we may waive them in whole or in part in our sole discretion. If we do so, the
exchange offer will remain open for at least five business days following any
waiver of the preceding conditions. Our failure at any time to exercise any of
the foregoing rights will not be deemed a waiver of any right.
In addition, we will not accept for exchange any original notes tendered, and no
exchange notes will be issued in exchange for any original notes, if at that
time any stop order is threatened or in effect relating to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
We have appointed JPMorgan Chase Bank as the exchange agent for the exchange
offer. You should direct all executed letters of transmittal to the exchange
agent at the address indicated below. You should direct questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery to the
exchange agent addressed as follows:
Delivery To: JPMorgan Chase Bank, Exchange Agent
<Table>
By Hand Before 4:30 p.m.: By Registered or Certified Mail:
JPMorgan Chase Bank JPMorgan Chase Bank
Institutional Trust Services/MMO Institutional Trust Services/MMO
4 New York Plaza, 13(th) Floor 4 New York Plaza, 13(th) Floor
New York, NY 10004 New York, NY 10004
Attention: Victor Matis
By Hand or Overnight Delivery after By Facsimile Transmission
4:30 p.m. on the Expiration Date: (for Eligible Institutions only):
JPMorgan Chase Bank (212) 623-8470 or
Institutional Trust Services/MMO (212) 623-8424
4 New York Plaza, 13(th) Floor Attention: Customer Service
New York, NY 10004 Confirm by Telephone:
For Information Call: (212) 623-8286
(212) 623-8286
</Table>
If you deliver the letter of transmittal to an address other than the address
indicated above or transmit instructions via facsimile other than to the
facsimile number indicated, then your delivery or transmission will not
constitute a valid delivery of the letter of transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others for soliciting
acceptances of the exchange offer. The expenses to be incurred in connection
with the exchange offer will be paid by us. These expenses will include
reasonable and customary fees and out-of-pocket expenses of the exchange agent
and reasonable out-of-pocket expenses incurred by brokerage houses and other
fiduciaries in forwarding materials to beneficial holders in connection with the
exchange offer.
18
ACCOUNTING TREATMENT
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expense of the exchange
offer over the term of the exchange notes under generally accepted accounting
principles.
TRANSFER TAXES
Holders who tender their original notes for exchange will not be obligated to
pay any related transfer taxes, except that holders who instruct us to register
exchange notes in the name of, or request that original notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer taxes.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE ORIGINAL NOTES
Holders of original notes who do not exchange their original notes for exchange
notes in the exchange offer will continue to be subject to the provisions in the
indenture regarding transfer and exchange of the original notes and the
restrictions on transfer of the original notes as described in the legend on the
original notes. In general, the original notes may not be offered or sold,
unless registered under the Securities Act, except under an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. We do not currently anticipate that we will register original
notes under the Securities Act.
Based on interpretations by the staff of the SEC, as described in no-action
letters issued to third parties, we believe that exchange notes issued in the
exchange offer in exchange for original notes may be offered for resale, resold
or otherwise transferred by holders of the original notes, other than any holder
which is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, as long as the exchange notes are acquired in
the ordinary course of the holders' business and the holders have no arrangement
or understanding with any person to participate in the distribution of the
exchange notes. However, the SEC has not considered this exchange offer in the
context of a no-action letter. We cannot assure you that the staff of the SEC
would make a similar determination with respect to this exchange offer as in the
other circumstances.
Each holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of exchange notes and has
no arrangement or understanding to participate in a distribution of exchange
notes. If any holder is an affiliate of ours, is engaged in or intends to engage
in or has any arrangement or understanding with any person to participate in the
distribution of the exchange notes to be acquired in the exchange offer, that
holder could not rely on the applicable interpretations of the staff of the SEC
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in exchange
for original notes must acknowledge that the original notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities and that it will comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any
19
resale of the exchange notes. Furthermore, any broker-dealer that acquired any
of its original notes directly from us:
- may not rely on the applicable interpretations of the staff of the SEC
contained in Exxon Capital Holdings Corp., SEC no-action letter (May 13,
1988), Morgan, Stanley & Co. Inc., SEC no-action letter (June 5, 1991)
and Shearman & Sterling, SEC no-action letter (July 2, 1993) and
- must also be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities Act
relating to any resale transaction.
See "Plan of distribution."
In addition, to comply with state securities laws, the exchange notes may not be
offered or sold in any state unless they have been registered or qualified for
sale in such state or an exemption from registration or qualification, with
which there has been compliance, is available. The offer and sale of the
exchange notes to "qualified institutional buyers," as defined under Rule 144A
of the Securities Act, is generally exempt from registration or qualification
under the state securities laws. We currently do not intend to register or
qualify the sale of exchange notes in any state where an exemption from
registration or qualification is required and not available.
20
BUSINESS
We are a diversified, worldwide manufacturing company doing business in two
business segments: Electrical Products and Tools & Hardware. We have over 100
manufacturing facilities and approximately 30,500 employees in the United States
and more than 20 foreign countries.
ELECTRICAL PRODUCTS SEGMENT
Our Electrical Products segment manufactures, markets and sells electrical and
circuit protection products, including fittings, support systems, enclosures,
wiring devices, plugs, receptacles, lighting fixtures, fuses, emergency
lighting, fire detection systems and security products for use in residential,
commercial and industrial construction, maintenance and repair applications. The
segment also manufactures, markets and sells products for use by utilities and
in industry for electrical power transmission and distribution, including
distribution switchgear, transformers, transformer terminations and accessories,
capacitors, voltage regulators, surge arresters, pole line hardware and other
related power systems components. Major products of this segment include:
ARKTITE plugs and receptacles.
ARROW-HART wiring devices.
ATLITE indoor commercial lighting.
B-LINE support systems, enclosures, fasteners.
BLESSING, CSA, PRETRONICA and UNIVEL emergency
lighting and power systems.
BUSSMANN and BUSS electrical and electronic fuses.
CAM-LOK electrical connectors.
CAPRI-CODEC cable accessories and flexible
conduits.
CEAG emergency lighting systems.
CHAMP and HAZARD-GARD HID and fluorescent
lighting.
COILTRONICS inductors and transformers.
COMBINED TECHNOLOGIES current-limiting fuses.
CONDULET fittings and outlet bodies.
COOPER POWER SYSTEMS distribution transformers,
power capacitors, voltage regulators, surge
arresters, pole line hardware and SCADA
master stations.
COOPER WIRING DEVICES circuit protective devices.
CORELITE and NEO-RAY indirect lighting products.
CROMPTON lighting fixtures and specialty lamps.
CROUSE-HINDS and CEAG electrical construction
materials and CROUSE-HINDS aviation lighting
products.
DLS electrical wiring and control systems.
EAGLE wiring devices, sockets and switches.
EDISON and EDISON PRO relays.
ELETROMEC DIN style fuses.
EMERALD consumer recessed and track lighting.
EMSA power transformers.
ENKLOSURES electrical enclosures.
ENVIROTEMP dielectric fluids.
FAIL-SAFE high abuse, clean room and
vandal-resistant lighting fixtures.
FULLEON, NUGELEC and TRANSMOULD fire detection
systems.
FUSETRON electric fuses and protectors.
HALO recessed and track lighting fixtures.
IRIS lighting systems.
JSB, LUMINOX and MENVIER emergency lighting
and fire detection systems.
KARP, EDISON, MERCURY and B&S electrical fuses.
KEARNEY fuses, connectors, tools and switches.
KYLE distribution switchgear.
LOW-PEAK electric fuses.
LUMIERE specification grade landscape lighting.
MAGNUM terminal strips and disconnect blocks.
MCGRAW-EDISON and LUMARK indoor and
outdoor lighting.
METALUX fluorescent lighting.
MINI-LINE molded-to-cable miniature connectors.
MOLDED PRODUCTS connectors and systems.
MWS modular wiring systems.
MYERS electrical hubs.
NOVA reclosers, sectionalizers and switches.
OPTIANCE fiber optic lighting.
PORTFOLIO architectural recessed lighting.
POSI-LOK electrical panel units.
POWERPLUS panel boards.
POWERSTOR carbon aerogel supercapacitors.
REGALSAFE signaling and life saving apparatus.
REGENT security lighting systems.
ROYER wiring devices, sockets and switches.
MCGRAW-EDISON and RTE transformer components,
cable accessories and fuses.
SCANTRONIC and MENVIER security systems.
SHAPER specification and commercial grade
lighting fixtures.
SPECONE controls, lighting, plugs and receptacles.
STREETWORKS outdoor lighting.
SURE-LITES and ATLITE exit and emergency lighting.
THEPITT electrical outlet and switch boxes.
TRANSX transient voltage protection devices.
ULTRASIL surge arresters.
USL sports lighting.
WILLSHER & QUICK electrical enclosures.
21
- ---------------
*Brand names appearing in bold type are registered trademarks in the United
States or abroad of Cooper Industries, Inc. or its subsidiaries, except the
following which are unregistered trademarks: AtLite, Blessing, B&S, Capri-Codec,
Combined Technologies, Cooper Wiring Devices, Corelite, CSA, DLS, Edison Pro,
EnKlosures, Hazard-Gard, Luminox, Mini-Line, Molded Products, Myers, Neo-Ray,
Nugelec, Optiance, Portfolio, Powerplus, PowerStor, Pretronica, Regalsafe,
SpecOne, Streetworks, Thepitt, Transmould, TransX, Univel, USL and Willsher &
Quick.
Fuses and circuit protection products are sold to end-users in the construction,
industrial, automotive and consumer markets and to manufacturers in the
electrical, electronic, telecommunications and automotive industries. Lighting
fixtures are utilized in residential construction, industrial, institutional and
commercial building complexes, shopping centers, parking lots, roadways, and
sports facilities. Electrical power products are used by utilities and
significant commercial and industrial power users. Electrical construction
materials are used in commercial, residential and industrial projects, by
utilities, airports and wastewater treatment plants and in the process and
energy industries. Emergency lighting, fire detection and security systems are
installed in residential, commercial and industrial applications. Support
systems and enclosures are used in industrial, commercial and telecommunications
complexes. Wiring devices are used in the construction, renovation, maintenance
and repair of residential, commercial, industrial and institutional buildings.
Demand for our Electrical Products segment follows general economic conditions
and is generally sensitive to activity in the construction market, industrial
production levels, electronic component production and spending by utilities for
replacements, expansions and efficiency improvements. The segment's product
lines are marketed directly to original equipment manufacturers and utilities
and to a variety of end-users through major distributor chains, retail home
centers and thousands of independent distributors.
The principal raw material requirements for this segment include copper, tin,
lead, plastics, insulating materials, pig iron, aluminum ingots, steel, aluminum
and brass. These raw materials are available from numerous sources located in
the United States and abroad.
TOOLS & HARDWARE SEGMENT
Our Tools & Hardware segment produces and markets tools and hardware items for
use in residential, commercial and industrial construction, maintenance and
repair, and for general industrial and consumer use. Major products of this
segment include:
AIRETOOL, ASSEMBLY SYSTEMS, BUCKEYE, CLECO,
COOPER AUTOMATION, DGD, DOLER, DOTCO,
GARDNER-DENVER, GARDOTRANS, QUACKENBUSH,
ROTOR TOOL and RECOULES industrial power tools
and assembly equipment.
APEX and GETA screwdriver bits, impact sockets
and universal joints.
CAMPBELL chain products.
CRESCENT pliers and wrenches.
DIAMOND farrier tools and horseshoes.
EREM precision cutters and tweezers.
KAHNETICS dispensing systems.
KME industrial tools and machines.
LUFKIN measuring tapes.
MASTER POWER industrial air tools.
METRONIX servos and drive controls.
NICHOLSON files and saws.
PLUMB hammers.
UTICA torque measuring and controls.
WELLER soldering equipment.
WIRE-WRAP solderless connection equipment.
WISS and H.K. PORTER cutting products.
XCELITE screwdrivers and nutdrivers.
- ---------------
*Brand names appearing in bold type are registered trademarks in the United
States or abroad of Cooper Industries, Inc. or its subsidiaries, except the
following which are unregistered trademarks: Assembly Systems, Cooper
Automation, Geta, KME and Metronix. Gardner-Denver is a registered trademark of
Gardner Denver, Inc. and is used by Cooper Industries under license.
22
Power tools and assembly systems are used by general industrial manufacturers,
particularly durable goods producers and original equipment manufacturers, such
as those in the aerospace and automobile industries. Hand tools are used in a
variety of industrial, electronics, agricultural, construction and consumer
applications.
Demand for nonpowered hand tools, assembly systems and industrial power tools is
driven by employment levels and industrial activity in major industrial
countries and by consumer spending. In addition, demand for industrial power
tools is influenced by automotive and aerospace production.
Products are sold through distributors and agents to general industry,
particularly automotive and aircraft; through distributors and wholesalers to
hardware stores, home centers, lumberyards, department stores and mass
merchandisers; and direct to original equipment manufacturers, home centers,
specialty stores, department stores, mass merchandisers and hardware outlets.
The principal raw material requirements for this segment include flat and bar
stock steel, brass, copper, tin plate, fiberglass, aluminum, iron castings,
wood, plastic pellets and plastic sheet. These materials are available from
numerous sources in the United States and abroad.
INTERNATIONAL OPERATIONS
Activities outside the United States contribute significantly to the revenues
and operating earnings of both of our segments and we maintain sales and
distribution networks throughout most of the industrialized world. The five
countries in which we generate most of our international revenues are Canada,
Germany, France, Mexico and the United Kingdom. As a general matter, we believe
there are not substantial differences in the business risks associated with
these international operations compared with domestic activities, although our
activities outside the United States are subject to political and economic
uncertainties, including trade barriers, restrictions on foreign exchange and
currency fluctuations. As the U.S. dollar strengthens against foreign currencies
at a rate greater than inflation in those countries, we may experience lower
segment revenues and operating earnings. In addition to the previously
referenced countries, we also have operations in India, Malaysia and China,
including several joint ventures with operations in China. Operations and
investments in these countries are subject to greater risks related to economic
and political uncertainties as compared to most countries in which we operate.
Financial information with respect to our sales by geographic areas is contained
in Note 15 of the Notes to our Consolidated Financial Statements included in
this prospectus.
COMPETITION
The markets for our products and services are worldwide, although the United
States is our largest market. Within the United States, there is no material
geographic concentration by state or region. We experience substantial
competition in both of our business segments, with the number and size of
competitors varying considerably depending on the product line. Most of our
operating units experience significant competition from both larger and smaller
companies, with the key competitive factors being price, quality, brand name and
availability. We consider our reputation as a manufacturer of a broad line of
quality products and premier brands to be an important factor in our businesses.
We believe we are among the leading manufacturers worldwide of electrical
distribution equipment, wiring devices, support systems,
23
hazardous duty electrical equipment, emergency lighting, lighting fixtures,
fuses, nonpower hand tools and industrial power tools.
RESEARCH AND DEVELOPMENT
Our research and development activities are focused on improving existing
products and services and originating new products. We spent approximately $55.8
million, $57.7 million and $54.0 million for research and development activities
in 2001, 2000 and 1999, respectively. We obtain and hold patents on products and
designs in the United States and many foreign countries in which our operations
are conducted or our products are sold. Although in the aggregate our patents
are important in the operation of our businesses, the loss by expiration or
otherwise of any one patent or license or group of patents or licenses would not
materially affect our overall business.
ENVIRONMENTAL
We are subject to a wide variety of environmental laws and regulations in the
United States and in foreign countries. We do not presently anticipate that
compliance with currently applicable environmental regulations and controls will
significantly affect our competitive position, capital spending or earnings
during the foreseeable future.
We have been a party to administrative and legal proceedings with governmental
agencies that have arisen under statutory provisions regulating the discharge or
potential discharge of material into the environment. We have consented to
orders and decrees containing agreed-upon timetables for fulfilling reporting or
remediation obligations or maintaining specified air and water discharge levels
in connection with permits for the operations of various plants. We believe we
are in compliance with these orders and decrees, and the cost of such compliance
is not material to our business or financial condition. For additional
information concerning our accruals for environmental liabilities, see Note 7 of
the Notes to our Consolidated Financial Statements included in this prospectus.
EMPLOYEES
We have approximately 30,500 employees, with approximately 13,000 employees
located outside the United States. Approximately 54% of our U.S. hourly
production work force is employed in 49 manufacturing facilities, distribution
centers and warehouses and is not covered by labor agreements. We have entered
into labor agreements with 24 bargaining units at 24 locations in the United
States, covering approximately 46% of our United States hourly production
employees. We also have entered into labor agreements with various unions at 30
international locations. We consider our employee relations to be excellent.
LEGAL MATTERS
We are subject to various suits, legal proceedings and claims that arise in the
normal course of business. While it is not feasible to predict the outcome of
these matters with certainty, we believe that their ultimate disposition should
not have a material adverse effect on our results of operations or financial
condition.
In October 1998, we sold our Automotive Products business to Federal-Mogul
Corporation ("Federal-Mogul"). These discontinued businesses (including the Abex
product line obtained from Pneumo-Abex Corporation in 1994) were operated
through subsidiary companies, and the stock of those subsidiaries was sold to
Federal-Mogul pursuant to a Purchase and Sale
24
Agreement dated August 17, 1998 ("1998 Agreement"). In conjunction with the
sale, Federal-Mogul indemnified us for certain liabilities of these subsidiary
companies, including liabilities related to the Abex product line and any
potential liability that we may have to Pneumo pursuant to a 1994 Mutual
Guaranty Agreement between us and Pneumo. On October 1, 2001, Federal-Mogul and
several of its affiliates filed a Chapter 11 bankruptcy petition and indicated
that Federal-Mogul may not honor the indemnification obligations to us. As of
the date of this prospectus, Federal-Mogul had not yet made a decision whether
to reject the 1998 Agreement, which includes the indemnification to us. If
Federal-Mogul rejects the 1998 Agreement, we will be relieved of our future
obligations under the 1998 Agreement, including specific indemnities relating to
payment of taxes and certain obligations regarding insurance for our former
Automotive Products businesses. To the extent we are obligated to Pneumo for any
asbestos-related claims arising from the Abex product line ("Abex Claims"), we
have rights, confirmed by Pneumo, to significant insurance for such claims.
Based on information provided by representatives of Federal-Mogul and recent
claims experience, from August 28, 1998 through June 30, 2002, a total of 81,099
Abex Claims were filed, of which 17,782 claims have been resolved, leaving
63,317 Abex Claims pending at June 30, 2002 that are the responsibility of
Federal-Mogul. During the six months ended June 30, 2002, 5,947 claims were
filed and 808 claims were resolved. From August 28, 1998 to June 30, 2002, the
average indemnity payment for resolved Abex Claims was $912 before insurance. A
total of $32.2 million was spent on defense costs during this period.
Historically, existing insurance coverage has provided 50% to 80% of the total
defense and indemnity payments for Abex Claims.
We have completed a thorough analysis of our potential exposure for asbestos
liabilities in the event Federal-Mogul rejects the 1998 Agreement. The analysis
included a review of the Abex Claims history, existing insurance coverage, the
contractual indemnities and other facts determined to date. At this time, the
manner in which this issue ultimately will be resolved is not known. We are
preserving our rights as a creditor for breach of Federal-Mogul's
indemnification to us and our rights against all Federal-Mogul subsidiaries. We
intend to take all actions to seek a resolution of the indemnification issues
and future handling of the Abex-related claims within the Federal-Mogul
bankruptcy proceedings. At June 30, 2002, we had a $92 million accrual for
potential liabilities related to the Federal-Mogul bankruptcy.
25
DESCRIPTION OF NOTES
The following description is only a summary of certain provisions of the
indenture, as supplemented, and the notes, a copy of which is available upon
request to us at the address set forth under "Where you can find more
information." We urge you to read the indenture and the notes, together with the
registration rights agreement, because they, and not this description, define
your rights as holders of the notes.
In this summary, the term Cooper refers only to Cooper Industries, Inc. and not
to its parent or any of its subsidiaries or affiliates, and the term Guarantor
refers only to Cooper Industries, Ltd. and not to any of its subsidiaries. You
can find the definitions of capitalized terms used in this description under the
subheading "Certain definitions."
GENERAL
Cooper issued the original notes and will issue the exchange notes under an
indenture, dated as of January 15, 1990, between Cooper and The Chase Manhattan
Bank (National Association) (now JPMorgan Chase Bank), as trustee, as
supplemented by the First Supplemental Indenture, dated as of May 15, 2002, and
the Second Supplemental Indenture, dated as of June 21, 2002, each among Cooper,
the Guarantor, and JPMorgan Chase Bank, as trustee. The original indenture
together with both supplemental indentures are collectively referred to in this
description as the indenture. The terms of the notes include those stated in the
indenture and those made part of the indenture and its supplements by reference
to the Trust Indenture Act of 1939. The form and terms of the exchange notes and
the original notes are identical in all material respects, except that transfer
restrictions and registration rights applicable to the original notes will not
apply to the exchange notes.
The notes will mature on July 1, 2007. Interest on the notes accrues at the rate
of 5.25% per year and is payable semi-annually in arrears on each January 1 and
July 1, commencing on January 1, 2003. Cooper will make each interest payment to
the holders of record of the notes on the immediately preceding December 15 and
June 15. The registered holder of a note will be treated as the owner of it for
all purposes. Only registered holders will have rights under the indenture.
The original notes are and the exchange notes will be Cooper's senior unsecured
obligations and rank equal in right of payment with all of Cooper's existing and
future unsecured and unsubordinated debt. The original notes are and the
exchange notes will be effectively subordinated in right of payment to Cooper's
existing and future senior secured indebtedness to the extent of the assets
securing that indebtedness, unless Cooper is required by the covenant described
below under "Certain covenants -- Covenant limiting secured indebtedness" to
secure the notes.
The indenture provides that Cooper may, without notice to or consent of the
holders, issue debt securities under the indenture from time to time in one or
more series and permits Cooper to establish the terms of each series of debt
securities at the time of issuance. Additional notes issued under the indenture
may have the same tenor, coupon and other terms as the notes so that such notes
and the notes offered hereby shall form a single series. The indenture does not
limit the aggregate principal amount of debt securities that may be issued under
the indenture. The notes and the exchange notes will constitute a series of debt
securities under the indenture, initially limited to $300 million in aggregate
principal amount.
26
References to the notes in this prospectus shall include (unless the context
otherwise requires) any further notes issued as described in this paragraph.
The interest rate on the notes is subject to increase in certain circumstances
relating to the registration of the exchange notes as further described under
"Registration rights; exchange offer."
Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
applies to any transfer or exchange of the notes, but Cooper may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection with the transfer or exchange.
The notes do not contain any provisions that may afford holders of the notes
protection upon a change in control of Cooper or the Guarantor or upon a highly
leveraged transaction, whether or not the transaction results in a change in
control of Cooper or the Guarantor.
REDEMPTION
The original notes are not, and the exchange notes will not be, redeemable prior
to their maturity either by Cooper or the holders of the notes, except as
provided below under "Optional redemption for tax reasons." The notes are not
subject to mandatory redemption.
NOTE GUARANTEE
The original notes are, and the exchange notes will be, fully and
unconditionally guaranteed by the Guarantor. The note guarantee is a senior
unsecured obligation of the Guarantor and ranks equal in right of payment with
all of the Guarantor's existing and future unsecured and unsubordinated debt.
The note guarantee is effectively subordinated in right of payment to the
Guarantor's existing and future senior secured indebtedness to the extent of the
assets securing that indebtedness, unless the Guarantor is required by the
covenant described below under "Certain covenants -- Covenant limiting secured
indebtedness" to secure the note guarantee.
The aggregate amount of obligations guaranteed will be reduced to the extent
necessary to prevent violation of, or becoming voidable under, applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting creditors generally.
CERTAIN COVENANTS
The indenture contains certain covenants, including, among others, those
described below. Except as set forth below, Cooper is not restricted by the
indenture from incurring any type of indebtedness or other obligation, from
paying dividends or making distributions on its capital stock or purchasing or
redeeming its capital stock. In addition, the indenture does not contain any
provisions that would require Cooper to repurchase or redeem or otherwise modify
the terms of any of the notes upon a change in control or other events involving
Cooper or the Guarantor which may adversely affect the creditworthiness of the
notes.
Covenant limiting secured indebtedness. Neither the Guarantor nor any Restricted
Subsidiary may create, assume, guarantee, or incur any Secured Indebtedness,
unless immediately thereafter the aggregate amount of all Secured Indebtedness
(with some exceptions described below), together with the discounted present
value of all rentals due on Sale and Leaseback Transactions (not otherwise
excluded from the limitations on Sale and Leaseback Transactions as described
under "Certain covenants -- Covenant limiting sale and leaseback transactions")
27
would not exceed 15% of Consolidated Tangible Assets. However, this limitation
does not apply to the following types of Secured Indebtedness:
- any Lien on property as to which the notes are equally and ratably
secured with (or, at the option of the Guarantor, prior to) the Secured
Indebtedness;
- Liens on property (including shares or Indebtedness) which is not a
Principal Property;
- Liens on property (including shares or Indebtedness) of any corporation
existing at the time the corporation becomes a Restricted Subsidiary;
- Liens on property (including shares or Indebtedness) existing at the
time of acquisition of the property by the Guarantor or a Restricted
Subsidiary;
- Liens to secure the payment of all or any part of the purchase price of
property (including shares or Indebtedness) created upon the acquisition
of such property by the Guarantor or a Restricted Subsidiary, and Liens
to secure any Secured Indebtedness incurred by the Guarantor or a
Restricted Subsidiary prior to, at the time of, or within one year after
the later of the acquisition, the completion of construction (including
any improvements, alterations or repairs to existing property) or the
commencement of commercial operation of the property, which Secured
Indebtedness is incurred for the purpose of financing all or any part of
the purchase price thereof or construction of improvements, alterations
or repairs thereon;
- Liens securing Secured Indebtedness of any Restricted Subsidiary owing
to the Guarantor or to another Restricted Subsidiary;
- Liens on property of a corporation existing at the time the corporation
is merged or consolidated with the Guarantor or a Restricted Subsidiary
or at the time of a sale, lease or other disposition of the properties of
a corporation as an entirety or substantially as an entirety to the
Guarantor or a Restricted Subsidiary;
- Liens on property of the Guarantor or a Restricted Subsidiary in favor
of governmental authorities or any trustee or mortgagee acting on behalf,
or for the benefit, of any governmental authorities to secure partial,
progress, advance or other payments pursuant to any contract or statute
or to secure any Indebtedness incurred for the purpose of financing all
or any part of the purchase price or the cost of construction of the
property subject to the Liens, and any other Liens incurred or assumed in
connection with the issuance of industrial revenue bonds or private
activity bonds the interest of which is exempt from federal income
taxation under Section 103(b) of the Internal Revenue Code;
- Liens existing on the first date on which a debt security is
authenticated by the trustee under the indenture; and
- certain extensions, renewals or replacements of any Lien referred to in
the above list.
Covenant limiting sale and leaseback transactions. Neither the Guarantor nor any
Restricted Subsidiary may enter into any Sale and Leaseback Transaction covering
any Principal Property of Cooper or any Restricted Subsidiary, unless:
(A) the sum of the following does not exceed 15% of Consolidated Tangible
Assets:
(1) the Attributable Debt outstanding pursuant to such Sale and
Leaseback Transactions;
28
(2) all Attributable Debt outstanding pursuant to all other Sale and
Leaseback Transactions entered into by the Guarantor or any Restricted
Subsidiary after the first date on which a debt security is
authenticated by the trustee under the indenture, except for Sale and
Leaseback Transactions of a Restricted Subsidiary entered into prior to
becoming a Restricted Subsidiary; and
(3) the aggregate amount of all Secured Indebtedness, except Secured
Indebtedness permitted under "Covenant limiting secured indebtedness"
above; or
(B) an amount equal to the greater of the following is applied to
retirement of Funded Debt within one year after the consummation of such
Sale and Leaseback Transaction:
(1) the net proceeds to the Guarantor or Restricted Subsidiary pursuant
to the Sale and Leaseback Transaction, or
(2) the fair market value of the property so leased as determined by
the Board of Directors (in the case of clause (1) or (2), after
repayment of, or otherwise taking into account, as the case may be, the
amount of any Secured Indebtedness secured by a Lien encumbering the
property which Secured Indebtedness existed immediately prior to the
Sale and Leaseback Transaction).
However, this limitation does not apply to any Sale and Leaseback Transaction:
- entered into in connection with the issuance of industrial revenue or
private activity bonds the interest of which is exempt from federal
income taxation under Section 103(b) of the Internal Revenue Code;
- if the Guarantor or a Restricted Subsidiary applies an amount equal to
the net proceeds, after repayment of any Secured Indebtedness secured by
a Lien encumbering the Principal Property which Secured Indebtedness
existed immediately before the Sale and Leaseback Transaction, of the
sale or transfer of the Principal Property leased in the Sale and
Leaseback Transaction to investment in another Principal Property within
one year before or after the sale or transfer;
- entered into by a corporation prior to the date such corporation became
a Restricted Subsidiary; or
- entered into by a corporation prior to the time such corporation was
merged or consolidated with the Guarantor or a Restricted Subsidiary or
prior to the time of a sale, lease or other disposition of the properties
of such corporation as an entirety or substantially as an entirety to the
Guarantor or a Restricted Subsidiary.
Certain definitions. Certain terms used in this description are defined in the
indenture as follows:
"ATTRIBUTABLE DEBT" means the present value (discounted in accordance with a
method of discounting which for financial reporting purposes is consistent with
generally accepted accounting principles) of the rental payments during the
remaining term of any Sale and Leaseback Transaction for which the lessee is
obligated (including any period for which such lease has been extended), such
rental payments not to include amounts payable by the lessee for maintenance and
repairs, insurance, taxes, assessments and similar charges and for contingent
rents (such as those based on sales). In case of any Sale and Leaseback
Transaction which is terminable by the lessee upon the payment of a penalty,
such rental payments shall
29
also include such penalty, but no rent shall be considered as required to be
paid under such lease subsequent to the first date upon which it may be so
terminated.
"BOARD OF DIRECTORS" means the Board of Directors of the Guarantor, or any
committee of such Board of Directors, or any committee of officers of the
Guarantor, duly authorized to take any action under the indenture.
"CONSOLIDATED TANGIBLE ASSETS" means, as of any date, the total amount of assets
of the Guarantor and its Subsidiaries on a consolidated basis at the end of the
fiscal quarter immediately preceding that date, as determined under generally
accepted accounting principles, less: (a) Intangible Assets and (b) appropriate
adjustments on account of minority interests of other persons holding equity
investments in Subsidiaries, in the case of each of clauses (a) and (b) above as
reflected on the consolidated balance sheet of the Guarantor and its
Subsidiaries as of the end of the fiscal quarter immediately preceding that
date.
"FUNDED DEBT" means:
- any Indebtedness maturing by its terms more than one year from the date
of its issuance, including any Indebtedness renewable or extendible at
the option of the obligor to a date later than one year from the date of
its original issuance, excluding any portion of Indebtedness which is
included in current liabilities; and
- any Indebtedness which may be payable from the proceeds of Funded Debt
as defined above under the terms of the Funded Debt.
"GUARANTOR" means Cooper Industries, Ltd., a Bermuda company, until a successor
replaces such party pursuant to the indenture and, thereafter, shall mean such
successor.
"INDEBTEDNESS" of any corporation means all indebtedness for money borrowed
which is created, assumed, incurred or guaranteed in any manner by such
corporation or for which such corporation is otherwise responsible or liable.
"INTANGIBLE ASSETS" means all goodwill, patents, trademarks, service marks,
trade names, copyrights, and all other items that would be treated as
intangibles on the consolidated balance sheet of Guarantor and its Subsidiaries
prepared under generally accepted accounting principles.
"LIEN" means any mortgage, pledge, security interest, lien, charge or other
encumbrance.
"PRINCIPAL PROPERTY" means
- any manufacturing plant located in the continental United States, or
manufacturing equipment located in any such manufacturing plant (together
with the land on which such plant is erected and fixtures comprising a
part thereof), owned or leased on the first date on which a note is
authenticated by the trustee or thereafter acquired or leased by the
Guarantor or any Restricted Subsidiary, other than (a) any property which
the Board of Directors determines is not of material importance to the
total business conducted, or assets owned, by the Guarantor and its
Subsidiaries, as an entirety; or (b) any portion of any such property
which the Board of Directors determines not to be of material importance
to the use or operation of such property; and
- any shares or Indebtedness issued by any Restricted Subsidiary.
- "MANUFACTURING PLANT" does not include any plant owned or leased
jointly or in common with one or more persons other than the Guarantor
and its Restricted
30
Subsidiaries in which the aggregate interest of the Guarantor and its
Restricted Subsidiaries does not exceed 50%. "MANUFACTURING EQUIPMENT"
means manufacturing equipment in such manufacturing plants used directly
in the production of the Guarantor's or any Restricted Subsidiary's
products and does not include office equipment, computer equipment,
rolling stock and other equipment not directly used in the production of
the Guarantor's or any Restricted Subsidiary's products.
"RESTRICTED SUBSIDIARY" means any Subsidiary substantially all the property of
which is located within the continental United States, other than:
- a Subsidiary primarily engaged in financing, including, without
limitation, lending on the security of, purchasing or discounting (with
or without recourse) receivables, leases, obligations or other claims
arising from or in connection with the purchase or sale of products or
services;
- a Subsidiary primarily engaged in leasing or insurance; or
- a Subsidiary primarily engaged in financing the Guarantor's or any
Restricted Subsidiary's operations outside the continental United States.
"SALE AND LEASEBACK TRANSACTION" means any arrangement with any person providing
for the leasing by the Guarantor or any Restricted Subsidiary of any Principal
Property of the Guarantor or any Restricted Subsidiary whether the property is
now owned or hereafter acquired which Principal Property has been or is to be
sold or transferred by the Guarantor or the Restricted Subsidiary to such
person. However, the following shall not be Sale and Leaseback Transactions:
- leases for a term of not more than three years;
- leases between the Guarantor and a Restricted Subsidiary or between
Restricted Subsidiaries; and
- leases of property executed prior to, at the time of, or within one
year after the later of, the acquisition, the completion of construction,
including any improvements or alterations on real property, or the
commencement of commercial operation, of the property.
"SECURED INDEBTEDNESS" of any corporation means Indebtedness secured by any Lien
upon property (including Shares or Indebtedness issued by any Restricted
Subsidiary) owned by the Guarantor or any Restricted Subsidiary.
"SUBSIDIARY" means any corporation a majority of the voting shares of which are
at the time owned or controlled, directly or indirectly, by the Guarantor or by
one or more Subsidiaries and which is consolidated in the Guarantor's latest
consolidated financial statements filed with the SEC or provided generally to
the Guarantor's shareholders.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Cooper may not merge into or consolidate with or convey or transfer its
properties and assets substantially as an entirety to any person unless:
- the successor corporation is a corporation organized and existing under
the laws of the United States of America or any state or the District of
Columbia;
31
- the successor corporation assumes by supplemental indenture all of
Cooper's obligations under the indenture; and
- immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time, or both,
would become an event of default, has occurred and is continuing.
The Guarantor may not merge into or consolidate with or convey or transfer its
properties substantially as an entirety to any person unless:
- the successor corporation assumes by supplemental indenture all of the
Guarantor's obligations under the indenture; and
- immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time, or both,
would become an event of default, has occurred and is continuing.
EVENTS OF DEFAULT
The following are events of default under the indenture:
- default for 30 days in payment of any interest installment when due;
- default in the payment of principal of, or premium, if any, on, any of
the notes of such series when due at its stated maturity, when called for
redemption, by declaration or otherwise;
- default in the making of any payment for a sinking, purchase or similar
fund provided for in respect of such series and continuance of such
default for a period of 30 days;
- default in the performance of any other covenant in the indenture with
respect to the notes for 90 days after notice to Cooper and the Guarantor
by the trustee or by holders of 25% in principal amount of the
outstanding notes of such series; or
- certain events of bankruptcy, insolvency and reorganization involving
Cooper or the Guarantor.
If an event of default described above occurs and is continuing, either the
trustee or the holders of not less than 25% in total principal amount of the
notes then outstanding may declare the principal of all outstanding notes and
the accrued interest to be due and payable immediately.
In some cases, the holders of a majority in principal amount of the outstanding
notes may on behalf of the holders of all notes waive any past default or event
of default for the notes or compliance with some provisions of the indenture,
except, among other things, an uncured default in payment of principal, premium,
if any, or interest, if any, on any of the notes of the series.
The trustee must, within 90 days after the occurrence of an event of default,
without regard to any grace period or notice requirement, give to the holders of
the notes notice of all uncured and unwaived defaults known to it. Except in the
case of default in the payment of principal, premium or interest on any of the
notes, the trustee will be protected in withholding the notice if it in good
faith determines that the withholding of the notice is in the interest of the
holders of the notes. The trustee is entitled to be indemnified by the holders
of the notes
32
before proceeding to exercise any right or power under the indenture at the
request of holders of the notes. The trustee's right to indemnification is
subject to the duty of the trustee during an event of default to act with the
required standard of care. Subject to the provisions of the indenture, the
holders of a majority in principal amount of the outstanding notes may direct
the time, method and place of conducting proceedings for remedies available to
the trustee exercising any trust or power conferred on the trustee. Cooper and
the Guarantor must file annually with the trustee a certificate of no default or
specifying any default that exists.
AMENDMENTS AND WAIVERS
Cooper, the Guarantor and the trustee may, without the consent of any holders of
notes, enter into supplemental indentures for, among others, the purposes of:
- adding to Cooper's or the Guarantor's covenants;
- adding additional events of default;
- curing ambiguities or inconsistencies in the indenture; or
- making any other provisions about matters or questions arising under
the indenture if the action does not adversely affect the interests of
the holders of any affected series of debt securities.
Cooper, the Guarantor and the trustee may, with the consent of the holders of a
majority in principal amount of the outstanding debt securities of each series
to be affected, execute supplemental indentures adding any provisions to or
changing or eliminating any of the provisions of the indenture or the debt
securities of a series or modifying any of the rights of the holders of the debt
securities of the series to be affected. However, no supplemental indenture may,
without the consent of the holder of each debt security affected, among other
things:
- change the fixed maturity (for these purposes that term does not
include payments due under any sinking, purchase or similar fund) of any
debt securities;
- reduce the principal amount of any debt securities;
- reduce the rate or extend the time of payment of interest on any debt
securities;
- reduce any premium payable upon the redemption of any debt securities;
or
- reduce the percentage of holders of debt securities of any series
required to consent to any supplemental indentures.
DEFEASANCE
Cooper and the Guarantor may at their option (a) be discharged from any and all
obligations of the notes, except in each case for some obligations to register
the transfer or exchange of the notes, replace stolen, lost or mutilated notes,
maintain paying agencies and hold moneys for payment in trust, or (b) be
released from some restrictive covenants of the indenture, including those
described above under "Certain covenants," and will not be limited by any
restrictions on merger, consolidation or sales of assets, in each case if Cooper
takes the following actions while no event of default is continuing with respect
to payments due under
33
the notes or certain events of bankruptcy, insolvency or reorganization of
Cooper or the Guarantor:
- deposits with the trustee, in trust, money, U.S. Government Obligations
or Eligible Obligations or any combination of these that through the
payment of interest and principal under their terms, will provide money
in an amount sufficient to pay all the principal, including any mandatory
sinking fund payments, any interest and any premium on the notes on the
dates the payments are due under the terms of the series; and
- provides to the trustee an opinion of counsel or a ruling from, or
published by, the Internal Revenue Service, that holders of the notes
will not recognize income, gain or loss for federal income tax purposes
from Cooper's and the Guarantor's exercise of their option and will be
required to pay federal income tax on the same amount and in the same
manner and at the same times as would have been the case if the option
had not been exercised.
In addition, Cooper and the Guarantor can also obtain a discharge under the
indenture with respect to the notes by depositing with the trustee, in trust,
funds sufficient to pay at maturity or upon redemption all of the notes,
provided that all of the notes are by their terms to become due and payable
within one year. No opinion of counsel or ruling from the Internal Revenue
Service is required in this case.
"U.S. GOVERNMENT OBLIGATIONS" means generally (a) direct obligations of the
United States of America for the payment of which its full faith and credit is
pledged or (b) obligations of a person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the timely payment
of which is unconditionally guaranteed as a full faith and credit obligation by
the United States of America, which, in either case, are not callable or
redeemable at the option of the issuer of the obligations.
"ELIGIBLE OBLIGATIONS" means obligations which, when deposited, cause the notes
to be rated in the highest generic long-term debt rating category assigned to
legally defeased debt by one or more nationally recognized rating agencies.
If there is any discharge of the notes under the terms of the indenture
described above, the holders of the discharged notes will be able to look solely
to the trust fund, and not to Cooper, for payments of principal, any premium,
and any interest.
PAYMENT OF ADDITIONAL AMOUNTS
If any taxes, assessments or other governmental charges are imposed by the
jurisdiction, other than the United States, where the Guarantor or a successor
(a "Payor") is organized or otherwise considered to be a resident for tax
purposes, any jurisdiction, other than the United States, from or through which
the Payor makes a payment on the notes, or, in each case, any political
organization or governmental authority thereof or therein having the power to
tax (the "Relevant Tax Jurisdiction") in respect of any payments under the
notes, the Payor will pay to each holder of a note, to the extent it may
lawfully do so, such additional amounts ("Additional Amounts") as may be
necessary in order that the net amounts paid to such holder will be not less
than the amount specified in such note to which such holder is entitled;
34
provided, however, the Payor will not be required to make any payment of
Additional Amounts for or on account of:
- any tax, assessment or other governmental charge which would not have
been imposed but for (a) the existence of any present or former
connection between such holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over, such
holder, if such holder is an estate, trust, partnership, limited
liability company or corporation) and the Relevant Tax Jurisdiction
including, without limitation, such holder (or such fiduciary, settlor,
beneficiary, member, shareholder or possessor) being or having been a
citizen or resident thereof or being or having been present or engaged in
trade or business therein or having or having had a permanent
establishment therein or (b) the presentation of a note (where
presentation is required) for payment on a date more than 30 days after
(x) the date on which such payment became due and payable or (y) the date
on which payment thereof is duly provided for, whichever occurs later;
- any estate, inheritance, gift, sales, transfer, personal property or
similar tax, assessment or other governmental charge;
- any tax, assessment or other governmental charge which is payable
otherwise than by withholding from payment of (or in respect of)
principal of, premium, if any, or any interest on, the notes;
- any tax, assessment or other governmental charge that is imposed or
withheld by reason of the failure by the holder or the beneficial owner
of the note to comply with a request of the Payor addressed to the holder
to provide information, documents or other evidence concerning the
nationality, residence or identity of the holder or such beneficial owner
which is required by a statute, treaty, regulation or administrative
practice of the taxing jurisdiction as a precondition to exemption from
all or part of such tax, assessment or other governmental charge; or
- any combination of the above.
Additional Amounts also will not be paid with respect to any payment of the
principal of, or any premium or interest on, any note to any holder who is a
fiduciary or partnership or limited liability company or other than the sole
beneficial owner of such payment to the extent such payment would be required by
the laws of the Relevant Tax Jurisdiction to be included in the income for tax
purposes of a beneficiary or settlor with respect to such fiduciary or a member
of such partnership, limited liability company or beneficial owner who would not
have been entitled to such Additional Amounts had it been the holder of such
note.
The Payor will provide the trustee with the official acknowledgment of the
Relevant Tax Authority (or, if such acknowledgment is not available, a certified
copy thereof) evidencing the payment of the withholding taxes by the Payor.
Copies of such documentation will be made available to the holders of the notes
or the Paying Agent, as applicable, upon request therefor.
All references in this prospectus to principal of, premium, if any, and interest
on the notes include any Additional Amounts payable by the Payor in respect of
such principal, such premium, if any, and such interest.
35
OPTIONAL REDEMPTION FOR TAX REASONS
Cooper is entitled to redeem all, but not part, of the notes if as a result of
any change in or amendment to the laws, regulations or rulings of the Relevant
Tax Jurisdiction or any change in the official application or interpretation of
such laws, regulations or rulings, or any change in the official application or
interpretation of, or any execution of or amendment to, any treaty or treaties
affecting taxation to which such Relevant Tax Jurisdiction is a party (a "Change
in Tax Law"), the Payor is or would be required on the occasion of the next
payment of principal or interest in respect of the notes to pay Additional
Amounts as described under the caption "Payment of Additional Amounts" and the
payment of such Additional Amounts cannot be avoided by the use of any
reasonable measures available to the Payor. The Change in Tax Law must become
effective on or after the original issue date with respect to the notes.
Further, Cooper must deliver to the trustee at least 30 days before the
redemption date an opinion of independent legal counsel of recognized standing
to the effect that the Payor has or will become obligated to pay Additional
Amounts as a result of such Change in Tax Law. Cooper must also provide the
holders with notice of the intended redemption at least 30 days and no more than
60 days before the redemption date. The redemption price will equal the
principal amount of the notes plus accrued interest to the redemption date.
THE TRUSTEE
JPMorgan Chase Bank is the trustee under the indenture and serves as the
Registrar and Paying Agent with regard to the notes. The trustee maintains the
register with respect to the transfer of the notes, and a holder interested in
exchanging notes for other denominations should contact the trustee. All
payments on the notes will be made as described under "Same day settlement and
payment." JPMorgan Chase Bank is an affiliate of J.P. Morgan Securities Inc.,
which was an initial purchaser of the original notes.
GOVERNING LAW
The indenture provides that it, the notes and the note guarantee will be
governed by, and construed in accordance with, the laws of the State of New
York.
BOOK ENTRY, DELIVERY AND FORM
The original notes were offered and sold to qualified institutional buyers in
reliance on Rule 144A ("Rule 144A Notes"). Original notes also may have been
transferred in offshore transactions in reliance on Regulation S ("Regulation S
Notes"). Except as set forth below, exchange notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000.
Rule 144A Notes initially were represented by one or more notes in registered,
global form without interest coupons (collectively, the "Rule 144A Global
Notes"). Any Regulation S Notes initially would have been represented by one or
more notes in registered, global form without interest coupons (collectively,
the "Regulation S Global Notes"). The exchange notes initially will be
represented by one or more notes in registered, global form without interest
coupons (collectively, the "Exchange Global Notes" and, together with the Rule
144A Global Notes and any Regulation S Global Notes, the "Global Notes"). The
Rule 144A Global Notes and any Regulation S Global Notes were, and the Exchange
Global Notes will be, deposited upon issuance with the trustee as custodian for
DTC, in New York, New York, and registered in the name of DTC or its nominee, in
each case for credit to an account of a direct or indirect participant in DTC as
described below. Beneficial interests in the Rule 144A Global Notes may
36
not be exchanged for beneficial interests in the Regulation S Global Notes at
any time except in the limited circumstances described below. See "-- Exchanges
between Rule 144A notes and Regulation S notes."
Except as set forth below, the Global Notes may be transferred, in whole and not
in part, only to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the Global Notes may not be exchanged for notes in
certificated form except in the limited circumstances described below. See
"-- Exchange of global notes for certificated notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of notes in certificated
form.
Rule 144A Notes (including beneficial interests in the Rule 144A Global Notes)
are subject to certain restrictions on transfer and bear a restrictive legend as
described. Any Regulation S Notes also bear such a legend. In addition,
transfers of beneficial interests in the Global Notes are subject to the
applicable rules and procedures of DTC and its direct or indirect participants
(including, if applicable, those of the Euroclear System ("Euroclear") and
Clearstream Banking, S.A. ("Clearstream"), as indirect participants in DTC),
which may change from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear and
Clearstream are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. Cooper takes no responsibility for these
operations and procedures and urges investors to contact the system or their
participants directly to discuss these matters.
DTC has advised Cooper that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised Cooper that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the initial purchasers with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants) or
by the Participants and the Indirect Participants (with respect to other
owners of beneficial interest in the Global Notes).
Investors in the Rule 144A Global Notes who are Participants in DTC's system may
hold their interests therein directly through DTC. Investors in the Rule 144A
Global Notes who are not Participants may hold their interests therein
indirectly through organizations (including
37
Euroclear and Clearstream) which are Participants in such system. Investors in
the Regulation S Global Notes must initially hold their interests therein
through Euroclear or Clearstream, if they are participants in such systems, or
indirectly through organizations that are participants in such systems. After
the expiration of 40 days after the closing of the offering of the original
notes (the "Restricted Period"), investors may also have held interests in the
Regulation S Global Notes through Participants in the DTC system other than
Euroclear and Clearstream. Euroclear and Clearstream hold interests in any
Regulation S Global Notes on behalf of their participants through customers'
securities accounts in their respective names on the books of their respective
depositories, which are Morgan Guaranty Trust Company of New York, Brussels
office, as operator of Euroclear, and Citibank, N.A., as operator of
Clearstream. All interests in a Global Note, including those held through
Euroclear or Clearstream, may be subject to the procedures and requirements of
DTC. Those interests held through Euroclear or Clearstream may also be subject
to the procedures and requirements of such systems. The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a person having beneficial interests in
a Global Note to pledge such interests to persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE
NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN
CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR "HOLDERS"
OF THE NOTES UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium and additional
interest, if any, on a Global Note registered in the name of DTC or its nominee
will be payable to DTC in its capacity as the registered holder under the
indenture. Under the terms of the indenture, Cooper and the trustee treat the
persons in whose names the notes, including the Global Notes, are registered as
the owners of the notes for the purpose of receiving payments and for all other
purposes. Consequently, neither Cooper, the trustee nor any agent of Cooper or
the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised Cooper that its current practice, upon receipt of any payment in
respect of securities such as the notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal amount
of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants
38
and will not be the responsibility of DTC, the trustee or Cooper. Neither Cooper
nor the trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the notes, and Cooper and the trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee for all purposes.
Subject to the transfer restrictions applicable to the original notes, transfers
between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the original
notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
DTC has advised Cooper that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given such direction. However, if there
is an event of default under the notes, DTC reserves the right to exchange the
Global Notes for legended notes in certificated form, and to distribute such
notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures
to facilitate transfers of interests in the Rule 144A Global Notes and any
Regulation S Global Notes among participants in DTC, Euroclear and Clearstream,
they are under no obligation to perform or to continue to perform such
procedures, and may discontinue such procedures at any time. Neither Cooper nor
the trustee nor any of their respective agents have any responsibility for the
performance by DTC, Euroclear or Clearstream or their respective Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive notes in registered certificated
form ("Certificated Notes") if:
(1) DTC (a) notifies Cooper that it is unwilling or unable to continue as
depositary for the Global Notes and Cooper fails to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under the
Exchange Act;
(2) Cooper, at its option, notifies the trustee in writing that it elects
to cause the issuance of the Certificated Notes; or
39
(3) there has occurred and is continuing a default or event of default
with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and, as relates to the original notes, will bear the applicable
restrictive legend unless that legend is not required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any Global
Note unless the transferor first delivers to the trustee a written certificate
(in the form provided in the indenture) to the effect that such transfer will
comply with the appropriate transfer restrictions applicable to such notes.
EXCHANGES BETWEEN RULE 144A NOTES AND REGULATION S NOTES
Beneficial interests in a Rule 144A Global Note may be transferred to a person
who takes delivery in the form of an interest in the Regulation S Global Note,
whether before or after the expiration of the Restricted Period, only if the
transferor first delivers to the trustee a written certificate (in the form
provided in the indenture) to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available).
Transfers involving exchanges of beneficial interests between the Rule 144A
Global Notes and any Regulation S Global Notes will be effected in DTC by means
of an instruction originated by the trustee through the DTC Deposit/Withdraw at
Custodian system. Accordingly, in connection with any such transfer, appropriate
adjustments will be made in principal amounts of the Regulation S Global Note
and the Rule 144A Global Note. Any beneficial interest in one of the Global
Notes that is transferred to a person who takes delivery in the form of an
interest in the other Global Note will, upon transfer, cease to be an interest
in such Global Note and will become an interest in the other Global Note and,
accordingly, will thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interests in such other Global Note for so
long as it remains such an interest.
SAME DAY SETTLEMENT AND PAYMENT
Cooper will make payments in respect of the notes represented by the Global
Notes (including principal, premium, if any, interest and additional interest,
if any) by wire transfer of immediately available funds to the trustee, unless
Cooper elects to make interest payments to the accounts specified by the Global
Note holder. Cooper will make all payments of principal, interest and premium
and additional interest, if any, with respect to Certificated Notes by wire
transfer of immediately available funds to the accounts specified by the holders
of the Certificated Notes or, if no such account is specified, by mailing a
check to each such holder's registered address.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
40
Clearstream) immediately following the settlement date of DTC. DTC has advised
Cooper that cash received in Euroclear or Clearstream as a result of sales of
interests in a Global Note by or through a Euroclear or Clearstream participant
to a Participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream following DTC's
settlement date.
41
REGISTRATION RIGHTS; EXCHANGE OFFER
The following description is only a summary of the registration rights
agreement, a copy of which is available upon request to us at the address set
forth under "Where you can find more information." We urge you to read the
registration rights agreement because it, and not this summary, defines certain
of your rights as holders of the original notes.
We and the initial purchasers of the original notes entered into the
registration rights agreement in connection with the issuance of the original
notes. Under that agreement, we agreed:
- to file with the SEC on or before 90 days after the date of issuance of
the original notes a registration statement on an appropriate form under
the Securities Act, which is the registration statement of which this
prospectus is a part and which we refer to as the exchange offer
registration statement, relating to a registered exchange offer for the
original notes and the related guarantee under the Securities Act;
- to use our reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities Act
within 180 days after the date of issuance of the original notes; and
- as soon as practicable after the effectiveness of the exchange offer
registration statement, to offer to the holders of transfer restricted
securities, as defined below, who are not prohibited by any law or policy
of the SEC from participating in the exchange offer, the opportunity to
exchange their transfer restricted securities for the exchange notes. We
will keep the exchange offer open for not less than 20 business days, or
longer if required by applicable law, after the date on which notice of
the exchange offer is mailed to the holders of the original notes.
If:
- we are not permitted to effect the exchange offer as contemplated by
this prospectus because of any change in law or applicable
interpretations of the law by the staff of the SEC;
- for any other reason the exchange offer is not consummated within 220
days after the date of issuance of the original notes;
- any initial purchaser of the original notes so requests with respect to
original notes held by an initial purchaser that are not eligible to be
exchanged for exchange notes in the exchange offer;
- any applicable law or interpretations do not permit any holder of
original notes to participate in the exchange offer; or
- any holder of original notes that participates in the exchange offer
does not receive freely transferable exchange notes in exchange for
tendered notes,
then we will file as promptly as practicable, but in no event more than the
later of 90 days after the date of issuance of the original notes or 45 days
after so required or requested, with the SEC, which we refer to as the shelf
filing date, a shelf registration statement to cover resales of transfer
restricted securities by those holders who satisfy various conditions relating
to the provision of information in connection with the shelf registration
statement.
42
For purposes of the above, "transfer restricted securities" means each original
note, until the earliest to occur of:
- the date on which that original note has been exchanged for a freely
transferable exchange note in the exchange offer;
- the date on which that original note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
- the date on which that original note is distributed to the public
pursuant to Rule 144 under the Securities Act or may be sold under Rule
144(k) under the Securities Act.
We will use our reasonable best efforts to have the exchange offer registration
statement or, if applicable, the shelf registration statement declared effective
by the SEC as promptly as practicable after it is filed. Unless the exchange
offer would not be permitted by policy of the SEC, we will commence the exchange
offer and will use our reasonable best efforts to consummate the exchange offer
as promptly as practicable, but in any event before 220 days after the date of
issuance of the original notes. If applicable, we will use our reasonable best
efforts to keep the shelf registration statement effective for a period ending
on the earlier of two years after the date of issuance of the original notes or
the date all transfer restricted securities become eligible for resale without
volume restrictions under Rule 144 under the Securities Act.
If any of the following events occur, each of which we refer to as a
"registration default":
- the exchange offer registration statement is not filed with the SEC on
or before 90 days after the date of issuance of the original notes or the
shelf registration statement is not filed with the SEC on or before the
shelf filing date;
- the exchange offer registration statement is not declared effective
within 180 days after the date of issuance of the original notes or the
shelf registration statement is not declared effective within 90 days
after the shelf filing date;
- the exchange offer is not consummated on or before 220 days after the
date of issuance of the original notes; or
- the shelf registration statement is filed and declared effective by the
date required but thereafter ceases to be effective, at any time that we
are obligated to maintain its effectiveness, or the prospectus contained
therein ceases to be usable and such failure to remain effective or be
usable exists for more than 30 days (whether or not successive) within
any 12-month period,
we will be obligated to pay additional interest to each holder of transfer
restricted securities, during the period of one or more registration defaults,
in an amount equal to 0.25% per year of the principal amount of the original
notes constituting transfer restricted securities held by the holder for the
first 90-day period immediately following the occurrence of the registration
default regardless of the number of registration defaults (and the rate will
increase by 0.25% per year with respect to the subsequent 90-day period), until
all registration defaults have been cured, up to a maximum additional interest
rate of 0.50% per year. We will pay the additional interest on regular interest
payment dates. Additional interest only accrues during a registration default.
43
The registration rights agreement also provides that we will:
- make available, for a period of 180 days after the consummation of the
exchange offer, a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any
exchange notes; and
- pay all expenses incident to the exchange offer, including the expense
of one counsel to the holders of the original notes, and will indemnify
certain holders of the original notes, including any broker-dealer,
against some liabilities, including liabilities under the Securities Act.
A broker-dealer that delivers a prospectus to purchasers in connection with
resales of the exchange notes will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
registration rights agreement, including indemnification rights and obligations.
Each holder of original notes who wishes to exchange its original notes for
exchange notes in the exchange offer will be required to make representations,
including representations that:
- any exchange notes to be received by it will be acquired in the
ordinary course of its business;
- it has no arrangement or understanding with any person to participate
in the distribution of the exchange notes; and
- it is not an "affiliate," as defined in Rule 405 under the Securities
Act, of ours, or if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for original notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of its exchange notes.
Holders of the original notes will be required to make representations to us, as
described above, in order to participate in the exchange offer. They also will
be required to deliver information to be used in connection with the shelf
registration statement in order to have their original notes included in the
shelf registration statement. A holder who sells original notes pursuant to the
shelf registration statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with these sales and will be bound by the
provisions of the registration rights agreement that are applicable to such a
holder, including indemnification obligations.
For so long as the notes are outstanding, we will continue to provide to holders
of the notes and to prospective purchasers of the notes the information required
by Rule 144A(d)(4) under the Securities Act.
44
CERTAIN TAX CONSIDERATIONS
BERMUDA TAX CONSIDERATIONS
Under current law, no income or withholding taxes are imposed in Bermuda upon
the issue, transfer or sale, or payments made in respect of the debt securities,
common shares, preference shares, depositary shares or warrants of a Bermuda
exempted company to persons non-resident in Bermuda. The Guarantor has received
from the Minister of Finance of Bermuda under the Exempted Undertakings Tax
Protection Act of 1966 an undertaking that, in the event of there being enacted
in Bermuda any legislation imposing any tax computed on profits or income,
including any dividend or capital gains withholding tax, or computed on any
capital assets, gain or appreciation or any tax in the nature of an estate or
inheritance tax or duty, the imposition of such tax shall not be applicable to
us or any of our operations, nor to our common shares nor to our obligations
until March 28, 2016. This undertaking does not, however, prevent the
application of Bermuda taxes to persons ordinarily resident in Bermuda.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal income tax
consequences of the ownership and disposition of the original notes and the
exchange notes, and of the exchange of the original notes for the exchange notes
pursuant to the exchange offer. This discussion is based on the Internal Revenue
Code of 1986, as amended, and administrative pronouncements, judicial decisions
and existing and proposed Treasury Regulations, together with related
interpretations, changes to any of which subsequent to the date of this
prospectus may affect the tax consequences described below, possibly with
retroactive effect.
The following discusses only notes held as capital assets within the meaning of
Section 1221 of the Code. It does not discuss all of the tax consequences that
may be relevant to a holder in light of that holder's particular circumstances
or to holders subject to special rules, such as certain financial institutions,
insurance companies, dealers in securities or foreign currencies, persons
holding notes in connection with a hedging transaction, "straddle," conversion
transaction or other integrated transaction, persons engaged in a trade or
business in the United States or persons who are former U.S. citizens or
resident aliens who have ceased to be U.S. citizens or to be taxed as resident
aliens. Prospective investors should consult their tax advisors with regard to
the application of U.S. federal tax laws to their particular situations, as well
as any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.
As used in the following discussion, the term "U.S. holder" means a beneficial
owner of a note that is, for U.S. federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States, any state or
political subdivision of the United States, or the District of Columbia;
- an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
- a trust if (A) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States persons have the
45
authority to control all substantial decisions of the trust or (B) the
trust has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
Prospective purchasers that are partnerships or partners in partnerships should
consult their tax advisors regarding the U.S. federal income tax consequences of
holding notes.
TAXATION OF U.S. HOLDERS
INTEREST INCOME
Payments of interest on notes generally will be taxable to a U.S. holder as
ordinary interest income from domestic sources at the time such payments are
accrued or paid (in accordance with the holder's regular method of tax
accounting).
SALES, EXCHANGE OR RETIREMENT OF NOTES
A U.S. holder will generally recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange, retirement or
other disposition of the notes (less a portion allocable to any accrued and
unpaid interest, which will be taxable as ordinary income) and the holder's
adjusted tax basis in the notes. A U.S. holder's adjusted tax basis in the notes
generally will be the initial purchase price paid. Such gain or loss will be
capital gain or loss and will be long-term capital gain or loss provided the
holder's holding period for the notes exceeds one year. In the case of a U.S.
holder other than a corporation, the current maximum marginal U.S. federal
income tax rate applicable to long-term capital gain recognized on the sale of
notes is 20%. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for U.S. federal income tax purposes.
EXCHANGE OF NOTES
The exchange of the original notes for exchange notes pursuant to the exchange
offer will not constitute a taxable event. Consequently, no gain or loss will be
recognized by a holder upon receipt of exchange notes. The holding period and
tax basis of exchange notes will be the same as the holding period and tax basis
of the original notes so exchanged immediately before the exchange.
ADDITIONAL INTEREST
We believe that the likelihood that additional interest will become payable due
to a failure to register the exchange notes is remote. Accordingly, we intend to
take the position that if such additional interest becomes payable, such
additional interest will be taxable to a U.S. holder as ordinary income in
accordance with such holder's method of accounting for federal tax purposes.
However, the Internal Revenue Service may take a different position, which could
affect the timing of both a holder's recognition of income and the availability
of our deduction with respect to such additional interest.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments to a U.S.
holder of principal and interest on the notes and to payments of the proceeds of
the sale of the notes
46
other than to certain exempt recipients (such as corporations). Up to 30% backup
withholding tax may apply to those payments if:
- the holder fails to furnish or certify its correct taxpayer
identification number or certification of foreign or other exempt status
to us in the manner required;
- the holder is notified by the Internal Revenue Service that it has
failed to report in full payments of interest and dividends properly; or
- under certain circumstances, the holder fails to certify that it has
not been notified by the Internal Revenue Service that it is subject to
backup withholding for failure to report interest and dividend payments.
Any amounts withheld under the backup withholding rules from a payment to a U.S.
holder will be allowed as a credit against the holder's U.S. federal income tax
and may entitle the holder to a refund, provided that the required information
is furnished to the Internal Revenue Service.
TAXATION OF NON-U.S. HOLDERS
PAYMENT OF INTEREST
Subject to the discussion below concerning backup withholding, payments of
interest on the notes by us or any paying agent thereof to any non-U.S. holder
will not be subject to United States federal withholding tax, provided that:
- the interest is not effectively connected with the conduct by such
holder of a trade or business in the United States;
- such holder does not own, actually or constructively, 10% or more of
the total combined voting power of all classes of our stock entitled to
vote within the meaning of Section 871(h)(3) of the Code and the
regulations thereunder, is not a controlled foreign corporation (within
the meaning of the Code) related, directly or indirectly, to us through
stock ownership, and is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code; and
- the certification requirement, as described below, has been fulfilled
with respect to the beneficial owner.
To satisfy the certification requirement referred to above, the beneficial owner
of notes, or a financial institution holding the notes on behalf of such owner,
must provide, in accordance with specified procedures, our paying agent with a
statement to the effect that that beneficial owner is not a U.S. person.
Currently, these requirements will be met if (1) the beneficial owner certifies
on Internal Revenue Service Form W-8BEN, under penalties of perjury, that it is
not a U.S. person and provides its name and address or (2) a financial
institution holding the notes on behalf of the beneficial owner certifies, under
penalties of perjury, that such statement has been received by it and furnishes
a paying agent with a copy thereof. The certification requirement referred to
above may also be satisfied with other documentary evidence with respect to an
offshore account or through certain foreign intermediaries. Non-U.S. holders of
notes, including foreign partnerships and their partners, should consult their
tax advisors regarding possible additional reporting requirements.
The gross amount of payments of interest that do not qualify for the exception
from withholding described above and that are not effectively connected with the
conduct by such holder of a trade or business in the United States will be
subject to U.S. withholding tax at a
47
rate of 30% unless a treaty applies to reduce or eliminate withholding and the
non-U.S. holder properly certifies to its entitlement to such treaty benefits on
Internal Revenue Service Form W-8BEN. Payments of interest that are effectively
connected with the conduct of a U.S. trade or business will not be subject to
withholding tax if the non-U.S. holder provides a properly executed Internal
Revenue Service Form W-8ECI stating that interest paid on the notes is not
subject to withholding tax because it is effectively connected with the
beneficial owner's conduct of a trade or business in the United States.
If a non-U.S. holder is engaged in a trade or business in the United States and
interest on the notes is effectively connected with the conduct of such trade or
business, the non-U.S. holder, although exempt from the withholding tax
discussed above (provided the certification requirements described above are
satisfied), will be subject to U.S. federal income tax on such interest on a net
income basis in the same manner as if it were a U.S. holder. In addition, if
such holder is a foreign corporation, it may be subject to a branch profits tax
equal to 30% (or lesser rate under an applicable income tax treaty) of its
effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, interest on notes will be included in such
foreign corporation's earnings and profits.
SALE, EXCHANGE OR DISPOSITION OF THE NOTES
Subject to the discussion below concerning backup withholding, a non-U.S. holder
of notes will not be subject to U.S. federal income tax on gain realized on the
sale, exchange or other disposition of such notes, unless:
- the holder is an individual who is present in the United States for 183
days or more in the taxable year of disposition, and certain other
conditions are met;
- the gain is effectively connected with the conduct by the holder of a
trade or business in the United States; or
- the holder is subject to the special rules applicable to certain former
citizens and residents of the United States.
EXCHANGE OF NOTES
The exchange of the original notes for exchange notes pursuant to the exchange
offer will not constitute a taxable event. Consequently, no gain or loss will be
recognized by a holder upon receipt of exchange notes. The holding period and
tax basis of exchange notes will be the same as the holding period and tax basis
of the original notes so exchanged immediately before the exchange.
ADDITIONAL INTEREST
As more fully described under "Registration rights; exchange offer," upon the
occurrence of certain enumerated events we may be required to make additional
interest payments to you on the original notes. It is possible that such
additional interest payments might be subject to U.S. withholding tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the Internal Revenue Service and to each non-U.S.
holder any interest paid to the non-U.S. holder. Copies of these information
returns may also be made
48
available under the provisions of a specific treaty or other agreement to the
tax authorities of the country in which the non-U.S. holder resides.
Under current U.S. federal income tax law, backup withholding tax of up to 30%
will not apply to payments of interest by us or any paying agent on notes if the
certifications described above under "-- Payment of interest" are received,
provided that we (or the paying agent, as the case may be) do not have actual
knowledge that the payee is a U.S. person.
Payments on the sale, exchange or other disposition of notes paid or collected
by a foreign office of a custodian, nominee or other foreign agent on behalf of
the beneficial owner of such notes, or if made to or through a foreign office of
a foreign broker generally will not be subject to backup withholding or
information reporting. However, if such nominee, custodian, agent or broker is
for U.S. federal income tax purposes a U.S. person, a controlled foreign
corporation, a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year period or a
foreign partnership in which one or more U.S. persons, in the aggregate, own
more than 50% of the income or capital interests in the partnership or which is
engaged in a trade or business in the United States, then information reporting
(but not backup withholding) will be required unless the broker has in its
records documentary evidence that the beneficial owner is not a U.S. person and
certain other conditions are met or the beneficial owner otherwise establishes
an exemption. Backup withholding may apply to any payment that the broker is
required to report if the broker has actual knowledge or reason to know that the
payee is a U.S. person. Payments to or through the U.S. office of a broker will
be subject to backup withholding and information reporting unless the holder
certifies, under penalties of perjury, that it is not a U.S. person and the
payor does not have actual knowledge or reason to know that the beneficial owner
is a U.S. person or otherwise establishes an exemption.
Non-U.S. holders of notes should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an applicable exemption, and the procedure for
obtaining an exemption, if available. Any amounts withheld from a payment to a
non-U.S. holder under the backup withholding rules will be allowed as a credit
against the holder's U.S. federal income tax liability and may entitle the
holder to a refund, provided that the required information is furnished to the
U.S. Internal Revenue Service.
49
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for original notes where the
original notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
expiration date of the exchange offer, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
resale. In addition, until , 2002, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of these methods of resale.
These resales may be made at market prices prevailing at the time of resale, at
prices related to these prevailing market prices or negotiated prices. Any
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
broker-dealer or the purchasers of any of the exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an underwriter within the meaning of the
Securities Act, and any profit on the resale of exchange notes and any
commission or concessions received by those persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
Furthermore, any broker-dealer that acquired any of its original notes directly
from us:
- may not rely on the applicable interpretations of the staff of the SEC
contained in Exxon Capital Holdings Corp., SEC no-action letter (May 13,
1988), Morgan, Stanley & Co., SEC no-action letter (June 5, 1991) and
Shearman & Sterling, SEC no-action letter (July 2, 1993); and
- must also be named as a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities Act
relating to any resale transaction.
We agree to pay all expenses incident to the exchange offer, including the
expenses of one counsel for the holders of the notes, other than commissions or
concessions of any brokers or dealers. We will indemnify the holders of the
notes, including any broker-dealers, against various liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the exchange offer will be passed upon
for us by Diane K. Schumacher, Senior Vice President and General Counsel of
Cooper Industries, Inc., and by Appleby, Spurling & Kempe of Hamilton, Bermuda.
50
EXPERTS
Our consolidated financial statements at December 31, 2001 and 2000, and for
each of the three years in the period ended December 31, 2001, included in this
prospectus and registration statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
said firm as experts in accounting and auditing.
51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COOPER INDUSTRIES, INC.
COOPER INDUSTRIES, LTD.
<Table>
<Caption>
PAGE
INCLUDED IN PROSPECTUS:
Report of independent auditors............................ F-1
Consolidated income statements for each of the three years
in the period ended December 31, 2001.................. F-2
Consolidated balance sheets as of December 31, 2001 and
2000................................................... F-3
Consolidated statements of cash flows for each of the
three years in the period ended December 31, 2001...... F-4
Consolidated statements of shareholders' equity for each
of the three years in the period ended December 31,
2001................................................... F-5
Notes to consolidated financial statements................ F-6
INCORPORATED IN PROSPECTUS BY REFERENCE TO COOPER
INDUSTRIES, LTD.'S FORM 10-Q FOR THE QUARTER ENDED JUNE
30, 2002:
Consolidated income statements for the six months ended
June 30, 2002 and 2001 (unaudited)
Consolidated balance sheet as of June 30, 2002 (unaudited)
Consolidated statements of cash flows for the six months
ended June 30, 2002 and 2001 (unaudited)
Notes to consolidated financial statements (unaudited)
</Table>
F-i
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cooper Industries, Inc.
We have audited the accompanying consolidated balance sheets of Cooper
Industries, Inc. as of December 31, 2001 and 2000, and the related consolidated
income statements and statements of shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cooper
Industries, Inc. at December 31, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Houston, Texas
January 23, 2002, except for Notes 20 and 21,
as to which the date is August 29, 2002
F-1
COOPER INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENTS
Year Ended December 31,
-------------------------------------
2001 2000 1999
---------- ---------- ----------
(in millions, except per share data)
Revenues....................................................... $ 4,209.5 $ 4,459.9 $ 3,868.9
Cost of sales.................................................. 2,943.9 3,018.3 2,603.4
Selling and administrative expenses............................ 729.7 732.9 640.9
Goodwill amortization.......................................... 60.7 58.5 47.1
Nonrecurring charges........................................... 74.1 -- 3.7
Interest expense, net.......................................... 84.7 100.3 55.2
--------- --------- ---------
Income from continuing operations before income taxes.... 316.4 549.9 518.6
Income taxes................................................... 55.1 192.5 186.7
--------- --------- ---------
Income from continuing operations........................ 261.3 357.4 331.9
Charge related to discontinued operations, net of income taxes. (30.0) -- --
--------- --------- ---------
Net income............................................... $ 231.3 $ 357.4 $ 331.9
========= ========= =========
Income per Common share
Basic:
Income from continuing operations..................... $ 2.78 $ 3.82 $ 3.53
Charge from discontinued operations................... (.32) -- --
--------- --------- ---------
Net income................................... $ 2.46 $ 3.82 $ 3.53
========= ========= =========
Diluted:
Income from continuing operations..................... $ 2.75 $ 3.80 $ 3.50
Charge from discontinued operations................... (.31) -- --
--------- --------- ---------
Net income................................... $ 2.44 $ 3.80 $ 3.50
========= ========= =========
Cash dividends per Common share................................ $ 1.40 $ 1.40 $ 1.32
========= ========= =========
The Notes to Consolidated Financial Statements are an integral part of
these statements.
F-2
COOPER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
2001 2000
---------- ---------
ASSETS (in millions)
Cash and cash equivalents........................................ $ 11.5 $ 26.4
Receivables...................................................... 777.1 828.8
Inventories...................................................... 670.9 706.9
Deferred income taxes and other current assets................... 191.7 173.0
-------- --------
Total current assets.................................... 1,651.2 1,735.1
-------- --------
Property, plant and equipment, less accumulated depreciation..... 826.8 870.4
Goodwill, less accumulated amortization.......................... 1,958.7 2,013.5
Deferred income taxes and other noncurrent assets................ 174.7 170.3
-------- --------
Total assets............................................ $4,611.4 $4,789.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt.................................................. $ 132.9 $ 166.1
Accounts payable................................................. 401.4 470.1
Accrued liabilities.............................................. 510.9 486.3
Current maturities of long-term debt............................. 60.9 51.1
-------- --------
Total current liabilities............................... 1,106.1 1,173.6
-------- --------
Long-term debt................................................... 1,107.0 1,300.8
Postretirement benefits other than pensions...................... 196.7 211.2
Other long-term liabilities...................................... 178.4 199.5
-------- --------
Total liabilities....................................... 2,588.2 2,885.1
-------- --------
Common stock, $5.00 par value.................................... 615.0 615.0
Capital in excess of par value................................... 646.0 663.3
Retained earnings................................................ 2,325.0 2,225.0
Common stock held in treasury, at cost........................... (1,435.0) (1,470.0)
Unearned employee stock ownership plan compensation.............. -- (8.6)
Accumulated other nonowner changes in equity..................... (127.8) (120.5)
-------- --------
Total shareholders' equity.............................. 2,023.2 1,904.2
-------- --------
Total liabilities and shareholders' equity.............. $4,611.4 $4,789.3
======== ========
The Notes to Consolidated Financial Statements are an integral part of
these statements.
F-3
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------
2001 2000 1999
------ ------ ------
(in millions)
Cash flows from operating activities:
Net income.................................................. $231.3 $357.4 $331.9
Plus: charge related to discontinued operations............ 30.0 -- --
------ ------ ------
Income from continuing operations........................... 261.3 357.4 331.9
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization............................. 186.4 174.4 147.6
Deferred income taxes..................................... (35.1) 98.8 60.0
Changes in assets and liabilities: (1)
Receivables............................................ 43.1 (8.0) (47.5)
Inventories............................................ 17.3 (51.1) (5.2)
Accounts payable and accrued liabilities............... (31.5) 5.6 (25.9)
Accrued income taxes................................... -- (52.3) 4.6
Other assets and liabilities, net...................... (19.1) (22.2) (63.6)
------ ------ ------
Net cash provided by operating activities............. 422.4 502.6 401.9
------ ------ ------
Cash flows from investing activities:
Cash received from (paid for) acquired businesses........... 9.8 (580.4) (434.6)
Capital expenditures........................................ (115.1) (174.9) (165.8)
Proceeds from disposition of businesses..................... -- -- 149.1
Proceeds from sales of property, plant and equipment........ 6.7 16.4 11.2
------ ------ ------
Net cash used in investing activities................. (98.6) (738.9) (440.1)
------ ------ ------
Cash flows from financing activities:
Proceeds from issuances of debt............................. 136.9 878.5 250.9
Repayments of debt.......................................... (343.2) (474.9) (69.0)
Dividends................................................... (131.3) (130.6) (124.4)
Acquisition of treasury shares.............................. (42.0) (39.3) (44.0)
Activity under employee stock plans and other............... 41.0 1.9 30.7
------ ------ ------
Net cash provided by (used in) financing activities... (338.6) 235.6 44.2
------ ------ ------
Effect of exchange rate changes on cash and cash equivalents... (0.1) 0.2 0.5
------ ------ ------
Increase (decrease) in cash and cash equivalents............... (14.9) (0.5) 6.5
Cash and cash equivalents, beginning of year................... 26.4 26.9 20.4
------ ------ ------
Cash and cash equivalents, end of year......................... $ 11.5 $ 26.4 $ 26.9
====== ====== ======
(1) Net of the effects of acquisitions and translation.
The Notes to Consolidated Financial Statements are an integral part of
these statements. See Note 17 for supplemental cash flow information.
F-4
COOPER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unearned
Employee
Capital Stock Accumulated
In Excess Ownership Nonowner
Common of Par Retained Treasury Plan Changes in
Stock Value Earnings Stock Compensation Equity Total
-----------------------------------------------------------------------------------------
(in millions)
BALANCE DECEMBER 31, 1998............... $ 615.0 $ 674.0 $ 1,790.0 $(1,444.8) $ (40.6) $ (30.0) $ 1,563.6
Net income.......................... 331.9 331.9
Minimum pension liability adjustment 1.1 1.1
Translation adjustment.............. (40.5) (40.5)
---------
Net income and other nonowner
changes in equity............ 292.5
---------
Common stock dividends.............. (124.4) (124.4)
Purchase of treasury shares......... (44.0) (44.0)
Stock issued under employee stock
plans............................ (1.6) 37.2 35.6
ESOP shares allocated............... (0.5) 17.6 17.1
Other activity...................... (0.2) 0.6 2.3 2.7
-------- -------- ---------- --------- ------- -------- ---------
BALANCE DECEMBER 31, 1999............... 615.0 671.7 1,998.1 (1,449.3) (23.0) (69.4) 1,743.1
---------
Net income.......................... 357.4 357.4
Minimum pension liability adjustment 0.1 0.1
Translation adjustment.............. (51.2) (51.2)
---------
Net income and other nonowner
changes in equity............ 306.3
---------
Common stock dividends.............. (130.6) (130.6)
Purchase of treasury shares......... (39.3) (39.3)
Stock issued under employee stock
plans............................ (4.9) 15.7 10.8
ESOP shares allocated............... (2.5) 14.4 11.9
Other activity...................... (1.0) 0.1 2.9 2.0
-------- -------- ---------- --------- ------- -------- ---------
BALANCE DECEMBER 31, 2000............... 615.0 663.3 2,225.0 (1,470.0) (8.6) (120.5) 1,904.2
Net income.......................... 231.3 231.3
Minimum pension liability adjustment (0.7) (0.7)
Translation adjustment.............. (6.3) (6.3)
Change in fair value of derivatives. (0.3) (0.3)
---------
Net income and other nonowner
changes in equity............ 224.0
---------
Common stock dividends.............. (131.3) (131.3)
Purchase of treasury shares......... (42.0) (42.0)
Stock issued under employee stock
plans............................ (16.6) 74.4 57.8
ESOP shares allocated............... 8.6 8.6
Other activity...................... (0.7) 2.6 1.9
-------- -------- ---------- --------- ------- -------- ---------
BALANCE DECEMBER 31, 2001............... $ 615.0 $ 646.0 $ 2,325.0 $(1,435.0) $ -- $ (127.8) $ 2,023.2
======== ======== ========== ========= ======= ======== =========
The Notes to Consolidated Financial Statements are an integral part of
these statements.
F-5
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The Consolidated Financial Statements include the
accounts of Cooper and its majority-owned subsidiaries. Affiliated companies are
accounted for on the equity method where Cooper owns 20% to 50% of the affiliate
unless significant economic, political or contractual considerations indicate
that the cost method is appropriate.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS: For purposes of the consolidated statements of cash flows,
Cooper considers all investments purchased with original maturities of three
months or less to be cash equivalents.
INVENTORIES: Inventories are carried at cost or, if lower, net realizable value.
On the basis of current costs, 61% and 64% of inventories at December 31, 2001
and 2000, respectively were carried on the last-in, first-out (LIFO) method. The
remaining inventories are carried on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost.
Depreciation is provided over the estimated useful lives of the related assets
using primarily the straight-line method. This method is applied to group asset
accounts, which in general have the following lives: buildings -- 10 to 40
years; machinery and equipment -- 3 to 18 years; and tooling, dies, patterns and
other -- 3 to 10 years.
GOODWILL: With minor exceptions, goodwill is amortized over 40 years from the
respective acquisition dates. At each balance sheet date presented, management
reviews the carrying value of long-lived assets and goodwill at the lowest level
feasible whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. If this review indicates that the carrying amount
will not be recoverable, as determined based on undiscounted cash flows over the
remaining amortization periods, an impairment loss is recognized. The impairment
loss equals the excess of the carrying amount over the fair value of the asset.
The fair value of the asset is based on prices for similar assets, if available,
or discounted cash flows.
REVENUE RECOGNITION: Cooper recognizes revenues in accordance with invoice
terms, typically when products are shipped. Accruals for sales returns and other
allowances are provided at the time of shipment based upon experience. Shipping
and handling costs of $125.5 million, $124.6 million and $96.2 million in 2001,
2000 and 1999, respectively, are reported as a reduction of revenues in the
consolidated income statements.
RESEARCH AND DEVELOPMENT EXPENDITURES: Research and development expenditures are
charged to earnings as incurred. Research and development expenses were $55.8
million, $57.7 million and $54.0 million in 2001, 2000 and 1999, respectively.
COMMON STOCK BASED COMPENSATION: Cooper follows the intrinsic value method of
accounting for stock based compensation plans as prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
IMPACT OF NEW ACCOUNTING STANDARDS: In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 141,
Business Combinations ("SFAS No. 141") and No. 142, Goodwill and Other
Intangible Assets ("SFAS No. 142"). SFAS 141 requires the use of the purchase
method of accounting for
F-6
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
all business combinations initiated after June 30, 2001. The adoption of this
statement had no impact on Cooper's consolidated results of operations and
financial position. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. Cooper will adopt the statement effective January 1, 2002.
Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives. In 2002, Cooper will perform the first step of the required two-step
impairment tests of goodwill and indefinite-lived intangible assets as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on its consolidated results of operations and financial position.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The statement is effective for
fiscal years beginning after December 15, 2001. Cooper will adopt this statement
effective January 1, 2002. This statement establishes a single accounting model
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired. Additionally, the statement expands the definition of a
discontinued operation from a segment of business to a component of an entity
that has been disposed of or is classified as held for sale and can be clearly
distinguished, operationally and for reporting purposes, from the rest of the
entity. The results of operations of a component classified as held for sale
shall be reported in discontinued operations in the period incurred. Adoption of
this statement will not have a significant effect on Cooper's consolidated
results of operations and financial position.
NOTE 2: NONRECURRING CHARGES
During the fourth quarter of 2001, Cooper committed to the
consolidation or closure of certain Electrical Products segment facilities and
recorded a provision for severance and other related costs of these announced
actions of $7.1 million. In addition, the Company concluded during 2001 that
various Electrical Products segment assets comprising $8.5 million of net book
value provided no future benefit to Cooper and were therefore fully impaired.
Also during the 2001 fourth quarter, Cooper recorded a charge of $8.4 million to
provide for the costs of assimilation of certain separate product lines rendered
partially duplicative as a result of previous Electrical Products segment
business acquisition activities. The 2001 fourth quarter nonrecurring charge for
the Electrical Products segment totals $24.0 million.
During the fourth quarter of 2001, Cooper recorded a General Corporate
nonrecurring charge of $50.1 million. Cooper concluded that the net book values
of certain software, hardware and other technology investments should be fully
impaired, in consideration of ongoing refinement and development of Company
information and technology systems capabilities. Also during the 2001 fourth
quarter, Cooper provided for the costs associated with performing the Company's
review of strategic alternatives. See Note 20 for additional information
regarding the company's review of strategic alternatives.
The nonrecurring charges for 2001 total $74.1 million, or $44.5 million
after taxes ($.47 per diluted common share). Of the total $74.1 million, $35.2
million remains to be expended at December 31, 2001. A total of 77 salaried and
196 hourly positions will be eliminated in 2002 as a result of these planned
consolidation actions.
During the first quarter of 1999, Cooper completed a previously
announced voluntary severance program and accrued an additional $5.8 million
primarily representing the voluntary severance program premium over the
severance provided under Cooper's established policies. Cooper also accrued $1.5
million related to severance and other costs for facility closures announced
during the first quarter of 1999. In addition, during 1999, Cooper reduced legal
accruals by $2.8 million related to the favorable settlement of certain
litigation concerning lead in mini-blinds and reassessment of the required
reserve. Cooper also reached agreement and received $0.8 million under an
insurance policy related to the unsuccessful offer to acquire TLG plc in 1998.
Since the original charge related to the litigation was included as a
nonrecurring item in the Tools & Hardware segment and the costs related to TLG
plc were reflected as a nonrecurring corporate item, the reversal of the accrual
and the reimbursement of the expenses were reflected as nonrecurring items. The
net nonrecurring items for 1999 resulted in a $3.7 million charge before income
taxes and resulted in an after-tax charge of $2.4 million ($.02 per diluted
common share).
F-7
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table reflects activity related to the first quarter 1999
and fourth quarter 1998 employee reduction and facility consolidation plan.
<Table>
<Caption>
No. of Accrued Facility
Employees Severance Consolidation
--------------- -------------- ---------------
(in millions)
Balance at December 31, 1998..................................... 1,635 $ 25.4 $ 7.8
Voluntary Severance Program premium over normal severance........ -- 5.8 --
Facility closings announced...................................... 249 1.2 0.3
Employees terminated ........................................... (966) -- --
Cash expenditures................................................ -- (22.0) (3.4)
--------------- -------------- ---------------
Balance at December 31, 1999..................................... 918 10.4 4.7
Employees terminated............................................. (311) -- --
Cash expenditures ............................................... -- (5.3) (1.7)
--------------- -------------- ---------------
Balance at December 31, 2000..................................... 607 5.1 3.0
Employees terminated............................................. (607) -- --
Cash expenditures................................................ -- (5.1) (3.0)
--------------- -------------- ---------------
Balance at December 31, 2001..................................... -- $ -- $ --
=============== ============== ===============
</Table>
As of December 31, 2001 all employee reduction and facility
consolidation actions related to the first quarter 1999 and fourth quarter 1998
employee reduction and facility consolidation plans were essentially completed
and amounts accrued for these programs have been satisfied.
NOTE 3: CHARGE RELATED TO DISCONTINUED OPERATIONS
In October 1998, Cooper sold its Automotive Products business to
Federal-Mogul Corporation ("Federal-Mogul"). These discontinued businesses
(including the Abex product line obtained from Pneumo-Abex Corporation
("Pneumo") in 1994) were operated through subsidiary companies, and the stock of
those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale
Agreement dated August 17, 1998 ("1998 Agreement"). In conjunction with the
sale, Federal-Mogul indemnified Cooper for certain liabilities of these
subsidiary companies, including liabilities related to the Abex product line and
any potential liability that Cooper may have to Pneumo pursuant to a 1994 Mutual
Guaranty Agreement between Cooper and Pnuemo. On October 1, 2001, Federal-Mogul
and several of its affiliates filed a Chapter 11 bankruptcy petition and
indicated that Federal-Mogul may not honor the indemnification obligations to
Cooper. As of the date of this filing, Federal-Mogul had not yet made a decision
whether to reject the 1998 Agreement, which includes the indemnification to
Cooper. If Federal-Mogul rejects the 1998 Agreement, Cooper will be relieved of
its future obligations under the 1998 Agreement, including specific indemnities
relating to payment of taxes and certain obligations regarding insurance for its
former Automotive Products businesses. To the extent Cooper is obligated to
Pneumo for any asbestos-related claims arising from the Abex product line ("Abex
Claims"), Cooper has rights, confirmed by Pneumo, to significant insurance for
such claims. Based on information provided by representatives of Federal-Mogul,
from August 28, 1998 through December 31, 2001, a total of 75,152 Abex Claims
were filed, of which 16,974 claims have been resolved leaving 58,178 Abex Claims
pending at December 31, 2001, that are the responsibility of Federal-Mogul.
Since August 28, 1998, the average indemnity payment for resolved Abex Claims
was $908 before insurance. A total of $25.5 million was spent on defense costs
for the period August 28, 1998 through December 31, 2001. Historically, existing
insurance coverage has provided 50% to 80% of the total defense and indemnity
payments for Abex claims. Since the October 1, 2001 bankruptcy filing by
Federal-Mogul through December 31, 2001, a total of 3,541 Abex Claims have been
filed.
With the assistance of independent advisors, Cooper has completed a
thorough analysis of its potential exposure for asbestos liabilities in the
event Federal-Mogul rejects the 1998 Agreement. At this time, the manner in
which this issue ultimately will be resolved is not known. Based on Cooper's
analysis of its contingent liability exposure resulting from Federal-Mogul's
bankruptcy, Cooper concluded that an additional fourth-quarter 2001
discontinued-operations provision of $30 million after-tax, or $.32 per share,
was appropriate to reflect the potential net financial impact of this issue.
This conclusion is based on a review of the Abex claims history, existing
insurance coverage, the contractual indemnities and other facts determined to
date. Cooper is preserving its rights as a creditor for breach of
Federal-Mogul's indemnification to Cooper and its rights against all
Federal-Mogul subsidiaries. Cooper intends to take all actions to seek a
resolution of the indemnification issues and future handling of the Abex-related
claims within the Federal-Mogul bankruptcy proceedings.
NOTE 4: ACQUISITIONS AND DIVESTITURES
During 2001, Cooper received purchase price adjustments of $9.8 million
net, primarily related to businesses acquired prior to 2001.
In 2000, Cooper completed two large acquisitions and three small
product-line acquisitions in its Electrical Products segment and one small
acquisition in its Tools & Hardware segment for an aggregate cost of $578.4
million, subject to adjustment as provided in the acquisition agreements. A
total of $378.2 million in goodwill was recorded,
F-8
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
including an additional $23.2 million in 2001, with respect to the acquisitions.
In March 2000, Cooper acquired Eagle Electric for a total cost of $124.6
million. Eagle Electric manufactures and sells electrical wiring devices
including switches, receptacles, plugs and connectors, cords and other
electrical accessories to the residential and commercial markets. In May 2000,
Cooper acquired B-Line Systems for a total cost of $430.6 million. B-Line
Systems manufactures and markets support systems and enclosures for electrical,
mechanical and telecommunications/data applications.
In 1999, Cooper completed eight acquisitions in its Electrical Products
segment and two small acquisitions in its Tools & Hardware segment for an
aggregate cost of $443.8 million. The acquisitions include two businesses in the
United Kingdom and a business in France that expanded the product offerings of
the Cooper European based division, three domestic lighting businesses and four
other small product-line acquisitions. A total of $354.4 million in goodwill was
recorded, including an additional $16.2 million in 2000, with respect to the
acquisitions.
The acquisitions have been accounted for as purchases and the results
of the acquisitions are included in Cooper's consolidated income statements
since the respective acquisition dates. The pro forma net income and earnings
per share for 2000 and 1999, assuming the acquisitions had been made at the
beginning of each year, would not be materially different from reported net
income and earnings per share.
On October 9, 1998, Cooper completed the sale of its Automotive
Products segment for cash proceeds of $1.9 billion. During 1999, Cooper received
an additional $149.1 million representing reimbursement of Cooper's pre-closing
cash funding of international operations and the additional cash invested in the
Automotive Products segment between March 31, 1998 and October 9, 1998.
NOTE 5: INVENTORIES
December 31,
-------------------------------
2001 2000
------------ ------------
(in millions)
Raw materials...............................................$ 223.6 $ 230.1
Work-in-process............................................. 132.2 134.6
Finished goods.............................................. 374.0 404.5
Perishable tooling and supplies............................. 21.4 20.5
----------- -----------
751.2 789.7
Excess of current standard costs over LIFO costs............ (80.3) (82.8)
----------- -----------
Net inventories....................................$ 670.9 $ 706.9
=========== ===========
F-9
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: PROPERTY, PLANT AND EQUIPMENT AND GOODWILL
December 31,
-------------------------------
2001 2000
------------ ------------
(in millions)
Property, plant and equipment:
Land and land improvements......................................................... $ 53.0 $ 51.5
Buildings.......................................................................... 428.1 408.9
Machinery and equipment............................................................ 812.7 816.0
Tooling, dies and patterns......................................................... 213.6 191.1
All other.......................................................................... 289.2 290.2
Construction in progress........................................................... 99.2 124.6
----------- -----------
1,895.8 1,882.3
Accumulated depreciation........................................................... (1,069.0) (1,011.9)
----------- -----------
$ 826.8 $ 870.4
=========== ===========
Goodwill........................................................................... $ 2,477.7 $ 2,473.7
Accumulated amortization........................................................... (519.0) (460.2)
----------- -----------
$ 1,958.7 $ 2,013.5
=========== ===========
NOTE 7: ACCRUED LIABILITIES
December 31,
------------------------------
2001 2000
----------- ------------
(in millions)
Salaries, wages and employee benefit plans............................................... $ 199.7 $ 207.9
Commissions and customer incentives...................................................... 68.6 39.1
Product and environmental liability accruals............................................. 35.7 40.9
Facility integration of acquired businesses.............................................. 39.3 37.5
Other (individual items less than 5% of total current liabilities)....................... 167.6 160.9
----------- -----------
$ 510.9 $ 486.3
=========== ===========
At December 31, 2001, Cooper had accruals of $13.0 million with respect
to potential product liability claims and $46.3 million with respect to
potential environmental liabilities, including $23.6 million classified as a
long-term liability, based on Cooper's current estimate of the most likely
amount of losses that it believes will be incurred.
The product liability accrual consists of $3.2 million of known claims
with respect to ongoing operations, $4.9 million of known claims for previously
divested operations and $4.9 million which represents an estimate of claims that
have been incurred but not yet reported. While Cooper is generally self-insured
with respect to product liability claims, Cooper has insurance coverage for
individual 2001 claims above $3.0 million.
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Such accruals are adjusted as information
develops or circumstances change. The environmental liability
F-10
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accrual includes $7.1 million related to sites owned by Cooper and $39.2 million
for retained environmental liabilities related to sites previously owned by
Cooper and third-party sites where Cooper was a potentially responsible party.
Third-party sites usually involve multiple contributors where Cooper's liability
will be determined based on an estimate of Cooper's proportionate responsibility
for the total cleanup. The amount actually accrued for such sites is based on
these estimates as well as an assessment of the financial capacity of the other
potentially responsible parties.
It has been Cooper's consistent practice to include the entire product
liability accrual and a significant portion of the environmental liability
accrual as current liabilities, although only approximately 15-25% of the
balance classified as current is normally spent on an annual basis. The annual
effect on earnings for product liability is essentially equal to the amounts
disbursed. In the case of the environmental liability, the annual expense is
considerably smaller than the disbursements, since the vast majority of Cooper's
environmental liability has been recorded in connection with acquired companies.
The change in the accrual balances from year to year reflects the effect of
acquisitions and divestitures as well as normal expensing and funding.
Cooper has not utilized any form of discounting in establishing its
product or environmental liability accruals. While both product liability and
environmental liability accruals involve estimates that can have wide ranges of
potential liability, Cooper has taken a proactive approach and has managed the
costs in both of these areas over the years. Cooper does not believe that the
nature of its products, its production processes, or the materials or other
factors involved in the manufacturing process subject Cooper to unusual risks or
exposures for product or environmental liability. Cooper's greatest exposure to
inaccuracy in its estimates is with respect to the constantly changing
definitions of what constitutes an environmental liability or an acceptable
level of cleanup.
In connection with acquisitions accounted for using the purchase method
of accounting, Cooper records, to the extent appropriate, accruals for the costs
of closing duplicate facilities, severing redundant personnel and integrating
the acquired business into existing Cooper operations. Significant accruals
include plant shut-down and realignment costs. The following table summarizes
the accrual balances and activity during each of the last three years:
2001 2000 1999
----------- ----------- -----------
(in millions)
ACTIVITY DURING EACH YEAR:
Balance, beginning of year............................................ $ 37.5 $ 10.8 $ 15.6
Spending.............................................................. (11.0) (3.5) (4.8)
Acquisitions - initial allocation..................................... - 28.6 1.2
Acquisitions - final allocation adjustment............................ 12.9 2.2 (0.3)
Translation........................................................... (0.1) (0.6) (0.9)
----------- ----------- -----------
Balance, end of year.................................................. $ 39.3 $ 37.5 $ 10.8
=========== =========== ===========
BALANCE BY CATEGORY OF ACCRUAL:
Plant shut-down and realignment....................................... $ 38.8 $ 36.5 $ 9.5
Other realignment and integration..................................... 0.5 1.0 1.3
----------- ----------- -----------
$ 39.3 $ 37.5 $ 10.8
=========== =========== ===========
Plant shut-down and realignment includes the costs to terminate
personnel, shut down the facilities, terminate leases and similar costs. Other
realignment and integration costs includes costs to exit product lines and
miscellaneous costs.
F-11
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the three years ended December 31, 2001, accruals reversed to
income were insignificant. The annual spending was primarily related to
downsizing and consolidating facilities. The 2000 acquisitions-initial
allocation amount is related to the Eagle Electric acquisition and includes
approximately $24.2 million for severance and related costs to terminate
personnel and $4.4 million of one-time additional costs associated with shutting
down manufacturing operations and vacating existing facilities.
Acquisitions-final allocation adjustment represents adjustments to goodwill for
finalization of the purchase price allocations recorded in the previous year.
The 2001 acquisitions - final allocation adjustment amount includes additional
severance and related costs to terminate personnel and facility shut-down costs
in connection with the Eagle Electric and B-Line Systems acquisitions.
NOTE 8: LONG-TERM DEBT AND LEASE COMMITMENTS
December 31,
------------------------------
2001 2000
------------ ------------
(in millions)
2.54%* commercial paper maturing at various dates through February 2002.................. $ 280.0 $ 400.0
6.41% - 6.97% second series medium-term notes, due through 2010.......................... 302.1 302.1
5.89% - 6.45% third series medium-term notes, due through 2008........................... 250.0 300.0
6.25% Euro bonds maturing in October 2005................................................ 270.2 279.4
3.76%* Pound Sterling notes payable maturing at various dates through 2005............... 26.3 27.4
Other.................................................................................... 39.3 43.0
------------ ------------
1,167.9 1,351.9
Current maturities....................................................................... (60.9) (51.1)
------------ ------------
Long-term portion........................................................................ $ 1,107.0 $ 1,300.8
=========== ===========
* Weighted average interest rates at December 31, 2001. The weighted average
interest rates on commercial paper and Pound Sterling bank loans and notes
were, 6.89% and 5.67%, respectively at December 31, 2000.
Cooper has U.S. committed credit facilities of $990 million, $440
million of which mature in 2002 and $550 million of which mature in 2004. At
December 31, 2001, Cooper had $648 million of its $990 million U.S. committed
credit facilities available, after considering commercial paper backup. At
December 31, 2000, $547.9 million of its total $1,040 million U.S. committed
credit facilities was available after considering commercial paper backup. The
agreements for the credit facilities require that Cooper maintain certain
financial ratios, including a prescribed limit on debt as a percentage of total
capitalization. Retained earnings are unrestricted as to the payment of
dividends, except to the extent that payment would cause a violation of the
prescribed limit on the debt-to-total capitalization ratio.
During 1999, Cooper completed a shelf registration statement to issue
up to $500 million of debt securities. At December 31, 2001, all $500 million of
the shelf registration was available to be issued.
Interest rates on Cooper's commercial paper were generally 2.6% and
2.8% below the U.S. prime rate during 2001 and 2000, respectively. Total
interest paid during 2001, 2000 and 1999 was $85 million, $96 million and $63
million, respectively.
Commercial paper of $280 million and $400 million at December 31, 2001
and 2000, respectively, was classified as long-term debt reflecting Cooper's
intention to refinance these amounts during the twelve-month period following
the balance sheet date through either continued short-term borrowing or
utilization of available credit facilities.
F-12
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maturities of long-term debt for the five years subsequent to December
31, 2001 are $60.9 million, $153.6 million, $280.4 million, $525.9 million and
$17.9 million, respectively. The future net minimum lease payments under capital
leases are not significant.
Cooper has entered into various operating lease agreements, primarily
for manufacturing, warehouse and sales office facilities and equipment.
Generally, the leases include renewal provisions and rental payments may be
adjusted for increases in taxes, insurance and maintenance related to the
property. Rent expense for all operating leases was $40.1 million, $37.1 million
and $32.9 million during 2001, 2000 and 1999, respectively.
At December 31, 2001, minimum annual rental commitments under
noncancellable operating leases were $31.1 million in 2002, $24.7 million in
2003, $15.1 million in 2004, $12.2 million in 2005, $10.4 million in 2006 and
$18.3 million thereafter.
NOTE 9: COMMON AND PREFERRED STOCK
COMMON STOCK
At December 31, 2001, 2000 and 1999, 250,000,000 shares of Common stock
were authorized of which 93,761,587, 93,413,244 and 94,199,620 shares were
issued and outstanding at December 31, 2001, 2000 and 1999, respectively. During
the year ended December 31, 2001, Cooper purchased 1,000,000 shares of treasury
stock at an average price of $41.95 per share and 1,348,343 shares were issued
primarily in connection with employee stock plans. During the year ended
December 31, 2000, Cooper purchased 1,138,500 shares of treasury stock at an
average price of $34.52 per share and 352,124 shares were issued primarily in
connection with employee stock plans. During the year ended December 31, 1999,
Cooper purchased 800,000 shares of treasury stock at an average price of $54.99
per share and 750,869 shares were issued primarily in connection with employee
stock plans. At December 31, 2001, Cooper had 14,728,631 shares reserved for the
Dividend Reinvestment Plan, grants and exercises of stock options,
performance-based stock awards and subscriptions under the Employee Stock
Purchase Plan and other plans.
Under the terms of the Dividend Reinvestment Plan, any holder of Common
stock may elect to have cash dividends and up to $24,000 per year in cash
payments invested in Common stock without incurring any brokerage commissions or
service charges.
Under a Shareholder Rights Plan adopted by the Board of Directors in
1997, share purchase Rights were declared as a dividend at the rate of one Right
for each share of Common stock. Each Right entitles the holder to buy one
one-hundredth of a share of Series A Participating Preferred Stock at a purchase
price of $225 per one one-hundredth of a share or, in certain circumstances
Common stock having a value of twice the purchase price. Each Right becomes
exercisable only in certain circumstances constituting a potential change of
control on a basis considered inadequate by the Board of Directors. The Rights
expire August 5, 2007 and, at Cooper's option, may be redeemed prior to
expiration for $.01 per Right.
PREFERRED STOCK
At December 31, 2001 and 2000, Cooper was authorized to issue 1,340,750
shares of Preferred stock with no par value, 10,000,000 shares of $2.00 par
value Preferred stock and 2,821,079 shares of $1.00 par value Preferred stock.
At December 31, 2001 and 2000, no Preferred shares were issued or outstanding.
NOTE 10: STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
Under Cooper stock option plans, officers, directors and key employees
may be granted options to purchase Cooper's Common stock at no less than 100% of
the market price on the date the option is granted. Options generally become
exercisable ratably over a three-year period commencing one year from the date
of grant and have a
F-13
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
maximum term of ten years. The plans also provide for the granting of
performance-based stock awards and restricted stock awards to certain key
executives.
A summary of the status of Cooper's fixed stock option plans for
officers and employees as of December 31, 2001 and activity during the three
years ended December 31, 2001 is presented below:
2001 2000 1999
--------------------- -------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- --------- --------- --------- ---------- ---------
Outstanding at beginning of year............... 3,810,497 $43.28 2,748,601 $45.94 2,144,104 $46.52
Granted........................................ 1,740,000 $45.19 1,425,800 $37.94 1,018,700 $43.52
Exercised...................................... (625,260) $42.33 (6,500) $39.06 (286,492) $39.82
Canceled....................................... (184,579) $44.09 (357,404) $42.57 (127,711) $50.13
--------- --------- ----------
Outstanding at end of year..................... 4,740,658 $44.07 3,810,497 $43.28 2,748,601 $45.94
========= ========= ==========
Options exercisable at end of year............. 1,866,391 1,608,117 1,128,905
Options available for grant at end of year..... 5,116,955 1,916,174 3,289,602
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------ ---------------------------------
Weighted
Shares Average Weighted Shares Weighted
Outstanding Remaining Average Exercisable Average
Range of At Contractual Exercise At Exercise
Exercise Prices 12/31/01 Life Price 12/31/01 Price
- --------------------- ------------- ----------- --------- -------------- ----------
$34.84 - $37.94 1,316,091 8.1 $ 37.61 311,031 $ 37.94
$38.13 - $39.06 257,687 3.8 $ 39.05 255,020 $ 39.06
$43.13 - $46.10 2,630,301 8.0 $ 45.24 765,428 $ 44.16
$54.28 - $56.63 536,579 5.6 $ 56.61 534,912 $ 56.62
------------ -------------
4,740,658 1,866,391
============ =============
During 2001, options to purchase 10,000 shares of common stock were
granted to nonemployee directors at an exercise price of $33.66 and options for
4,000 shares were exercised at $42.13 to $49.03 per share. During 2000, options
to purchase 9,000 shares of Common stock were granted to nonemployee directors
at an exercise price of $35.19 and options for 4,000 shares were exercised at
$17.31 per share. During 1999, options to purchase 11,000 shares of Common stock
were granted to nonemployee directors at an exercise price of $49.03 and options
for 4,000 shares were exercised at $14.69 per share. At December 31, 2001,
options under the director plans for 23,000 Common shares were exercisable at
$42.13 to $63.78 per share, and 129,100 shares were reserved for future grants.
Participants in the Employee Stock Purchase Plan receive an option to
purchase Common stock at a price that is the lesser of 85% of the market value
on the offering date or 85% of the market value on the purchase date. On
September 10, 2001, a total of 311,452 shares were sold to employees at $44.63
per share. At December 31, 2001, subscriptions for 915,876 shares of Common
stock were outstanding at $34.07 per share or, if lower, 85% of the average
market price on September 8, 2003, which is the purchase date. At December 31,
2001, an aggregate of 2,423,976 shares of Common stock were reserved for future
issuance.
Cooper follows the intrinsic value method of accounting for stock-based
compensation plans as prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, no compensation expense is recognized under Cooper's fixed stock
option plans or Employee Stock Purchase Plan. Compensation expense of $2.7
million, $5.1 million and $6.1 million was recognized in the consolidated
financial statements during 2001, 2000 and 1999, respectively for the
performance-based and restricted stock awards. If compensation expense for all
of Cooper's stock-based compensation plans was
F-14
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recognized using the alternative fair value method of accounting under Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, net income and earnings per share would have decreased by
approximately 2.0% in 2001, 2.1% in 2000 and 2.3% in 1999. The fair value was
estimated on the date of grant, using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 2001, 2000
and 1999 respectively: dividend yield of 3.5%, 3.5% and 3.0%, expected
volatility of 27.5%, 26.4% and 26.4%, risk free interest rates of 5.1%, 6.7% and
5.0% and expected lives of 7 years for 2001, 2000 and 1999.
NOTE 11: ACCUMULATED NONOWNER CHANGES IN EQUITY
Minimum Loss On Cumulative
Pension Derivative Translation
Liability Instruments Adjustment Total
----------- ----------- ------------ ---------
(in millions)
Balance December 31,1998........................ $ (3.9) $ -- $ (26.1) $ (30.0)
Current year other nonowner changes in equity... 1.1 -- (40.5) (39.4)
----------- ----------- ------------ ---------
Balance December 31, 1999....................... (2.8) -- (66.6) (69.4)
Current year other nonowner changes in equity... 0.1 -- (51.2) (51.1)
----------- ----------- ------------ ---------
Balance December 31, 2000....................... (2.7) -- (117.8) (120.5)
Current year other nonowner changes in equity... (0.7) (0.3) (6.3) (7.3)
----------- ----------- ------------ ---------
Balance December 31, 2001....................... $ (3.4) $ (0.3) $(124.1) $(127.8)
=========== =========== ============ =========
2001 2000 1999
------------------------------ ------------------------------ ------------------------------
Before Tax Before Tax Before Tax
Tax (Expense) Net Tax (Expense) Net Tax (Expense) Net
Amount Benefit Amount Amount Benefit Amount Amount Benefit Amount
------- --------- ------- ------- --------- -------- ------ -------- --------
(in millions)
Minimum pension
liability adjustment.. $ (1.1) $ 0.4 $ (0.7) $ 0.1 $ -- $ 0.1 $ 1.9 $ (0.8) $ 1.1
------- --------- ------- ------- --------- -------- -------- -------- --------
Change in fair value
of derivatives........ (1.0) 0.4 (0.6) -- -- -- -- -- --
Reclassification to
earnings.............. 0.5 (0.2) 0.3 -- -- -- -- -- --
------- --------- ------- ------- --------- -------- -------- -------- --------
(0.5) 0.2 (0.3) -- -- -- -- -- --
------- --------- ------- ------- --------- -------- -------- -------- --------
Translation adjustment.... (9.7) 3.4 (6.3) (78.8) 27.6 (51.2) (62.3) 21.8 (40.5)
------- --------- ------- ------- --------- -------- -------- -------- --------
Other nonowner
changes in equity..... $ (11.3) $ 4.0 $ (7.3) $ (78.7) $ 27.6 $ (51.1) $ (60.4) $ 21.0 $ (39.4)
======== ========= ======= ======= ========= ======== ======== ======== ========
F-15
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12: INCOME TAXES
Year Ended December 31,
------------------------------------
2001 2000 1999
----------- ---------- ----------
(in millions, except for percentages)
Components of income from continuing operations
before income taxes:
U.S. operations................................................ $211.9 $433.7 $390.7
Foreign operations............................................. 104.5 116.2 127.9
------ ------ ------
Income from continuing operations before income taxes........ $316.4 $549.9 $518.6
====== ====== ======
Components of income tax expense:
Current:
U.S. Federal................................................... $ 60.8 $ 64.0 $ 84.3
U.S. state and local........................................... 6.2 1.3 6.2
Foreign........................................................ 23.2 28.4 36.2
------ ------ ------
90.2 93.7 126.7
------ ------ ------
Deferred:
U.S. Federal................................................... (43.9) 72.8 48.0
U.S. state and local........................................... 2.5 19.4 10.4
Foreign........................................................ 6.3 6.6 1.6
------ ------ ------
(35.1) 98.8 60.0
------ ------ ------
Income tax expense........................................... $ 55.1 $192.5 $186.7
====== ====== ======
Total income taxes paid............................................. $100.8 $132.3 $132.5
====== ====== ======
Effective tax rate reconciliation:
U.S. Federal statutory rate.................................... 35.0% 35.0% 35.0%
State and local income taxes................................... 1.4 2.2 1.9
Foreign statutory rate differential............................ (3.5) (1.2) (1.5)
Nondeductible goodwill......................................... 4.3 2.4 2.3
Foreign Sales Corporation...................................... (1.4) (0.8) (0.7)
Tax credits.................................................... (0.2) (1.4) (0.3)
Reduction in tax reserves...................................... (15.8) -- --
Other.......................................................... (2.4) (1.2) (0.7)
------ ------ ------
Effective tax rate attributable to continuing operations..... 17.4% 35.0% 36.0%
====== ====== ======
A $50 million U.S. Federal tax benefit was recorded in 2001 as a result
of recent favorable Appellate level third party court decisions related to
certain income tax return issues. These court decisions have validated Cooper's
tax return treatment of similar transactions executed in 1997 and prior years
that are being contested by the Internal Revenue Service. In light of the Fifth
Circuit Court decision, issued in December 2001, Cooper concluded that the tax
reserve related to these transactions is no longer required.
F-16
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31,
----------------------------
2001 2000
----------- -----------
(in millions)
Components of deferred tax assets and liabilities:
Deferred tax assets:
Postretirement and other employee welfare benefits................................ $ 66.4 $ 80.1
Accrued liabilities............................................................... 153.1 134.0
Minimum pension liability......................................................... 2.2 1.8
Capital loss carryforward (1)..................................................... 54.9 59.1
Other............................................................................. 58.5 55.1
----------- -----------
Total deferred tax assets..................................................... 335.1 330.1
----------- -----------
Valuation allowance (1)............................................................. (47.0) (47.0)
----------- -----------
Deferred tax liabilities:
Property, plant and equipment and intangibles..................................... (126.9) (107.0)
Inventories....................................................................... (24.9) (18.9)
Employee stock ownership plan..................................................... (24.3) (21.8)
Pension plans..................................................................... (32.4) (34.2)
Other............................................................................. (0.1) (22.3)
----------- -----------
Total deferred tax liabilities................................................ (208.6) (204.2)
----------- -----------
Net deferred tax asset ....................................................... $ 79.5 $ 78.9
============ ===========
(1) Cooper incurred a capital loss on the sale of the Automotive Products
segment. Cooper limited the amount of tax benefits recognized based on an
evaluation of the amount of capital loss carryforward that is expected to
be realized. The capital loss carryforward is available to offset capital
gains through 2003.
The U.S. Federal portion of the above provision includes U.S. tax
expected to be payable on the foreign portion of Cooper's income before income
taxes when such earnings are remitted. Cooper's liabilities at December 31, 2001
and 2000 include the additional U.S. tax estimated to be payable on
substantially all unremitted earnings of foreign subsidiaries.
NOTE 13: PENSION AND OTHER POSTRETIREMENT BENEFITS
Cooper and its subsidiaries have numerous defined benefit pension plans
and other postretirement benefit plans. The benefits provided under Cooper's
various postretirement benefit plans other than pensions, all of which are
unfunded, include retiree medical care, dental care, prescriptions and life
insurance, with medical care accounting for approximately 90% of the total.
Current employees, unless grandfathered under plans assumed in acquisitions, are
not provided postretirement benefits other than pensions. The vast majority of
the annual other postretirement benefit expense is related to employees who are
already retired.
F-17
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other
Pension Benefits Postretirement Benefits
--------------------------------------------
2001 2000 2001 2000
-------- ------- -------- -----------
(in millions)
Change in benefit obligation:
Benefit obligation at January 1.................. $584.3 $565.3 $ 112.2 $ 116.5
Service cost..................................... 16.2 14.9 0.2 0.1
Interest cost.................................... 42.5 41.0 8.2 8.8
Benefit payments................................. (44.4) (27.6) (13.3) (13.6)
Settlements...................................... -- (25.7) -- --
Actuarial (gain) loss............................ 23.1 (5.9) 34.0 (0.6)
Acquisitions..................................... -- 25.5 -- 2.2
Other............................................ 0.6 (3.2) 0.1 (1.2)
-------- ------- -------- -----------
Benefit obligation at December 31..................... 622.3 584.3 141.4 112.2
-------- ------- -------- -----------
Change in plan assets:
Fair value of plan assets at January 1........... 616.1 615.3 -- --
Actual return on plan assets..................... (3.6) 10.7 -- --
Employer contributions........................... 5.4 7.6 13.3 13.6
Benefit payments................................. (44.4) (27.6) (13.3) (13.6)
Settlements...................................... -- (25.7) -- --
Acquisitions..................................... -- 39.1 -- --
Other............................................ (3.1) (3.3) -- --
-------- ------- -------- -----------
Fair value of plan assets at December 31.............. 570.4 616.1 -- --
-------- ------- -------- -----------
Funded status......................................... (51.9) 31.8 (141.4) (112.2)
Unrecognized actuarial (gain) loss.................... 85.2 7.4 (53.5) (96.0)
Unrecognized prior service cost....................... 2.9 0.1 (1.8) (3.0)
Other................................................. 0.4 0.6 -- --
-------- ------- -------- -----------
Net amount recognized................................. $ 36.6 $ 39.9 $(196.7) $ (211.2)
======== ======= ======== ===========
Amounts recognized in the balance sheet consist of:
Prepaid benefit asset............................ $103.2 $105.4 $ -- $ --
Accrued benefit liability........................ (73.4) (71.5) (196.7) (211.2)
Intangible asset................................. 1.2 1.5 -- --
Accumulated other non-owner changes in equity.... 5.6 4.5 -- --
-------- ------- -------- -----------
Net amount recognized................................. $ 36.6 $ 39.9 $(196.7) $ (211.2)
======== ======= ======== ===========
The projected benefit obligation and accumulated benefit obligation for
Cooper's unfunded defined benefit pension plans were $69.6 million and $65.2
million as of December 31, 2001, and $69.0 million and $64.4 million as of
December 31, 2000, respectively.
F-18
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pension Benefits Other Postretirement Benefits
------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
------ ------- ------- -------- ------ ----------
Components of net periodic benefit cost: (in millions)
Service cost............................ $16.2 $14.9 $15.4 $ 0.2 $ 0.1 $ 0.2
Interest cost........................... 42.5 41.0 38.1 8.2 8.8 10.4
Expected return on plan assets.......... (49.7) (52.1) (50.7) -- -- --
Amortization of unrecognized
transition (asset) obligation....... 0.2 0.2 (1.5) -- -- --
Amortization of prior service cost...... 0.3 -- 0.1 (1.2) (1.4) (1.5)
Recognized actuarial (gain) loss........ 2.1 (2.0) (0.8) (8.5) (9.3) (7.5)
Settlement/curtailment.................. -- (3.6) 0.1 -- -- --
----- ----- ----- ----- ----- -----
Net periodic benefit cost............... $11.6 $(1.6) $ 0.7 $(1.3) $(1.8) $ 1.6
===== ===== ===== ===== ===== =====
Net periodic pension benefit costs includes a $3.6 million settlement
gain in 2000 primarily resulting from the 1999 voluntary severance program (Note
2).
Other
Pension Benefits Postretirement Benefits
------------------------------- -----------------------
2001 2000 2001 2000
------------ ------------- -------- ------
Weighted average assumptions as of December 31:
Discount rate......................................... 6.00% - 7.25% 6.00% - 7.75% 7.25% 7.75%
Expected return on plan assets........................ 7.00% - 8.50% 7.00% - 8.50% -- --
Rate of compensation increase......................... 3.00% - 4.50% 3.00% - 4.50% -- --
For other postretirement benefit measurement purposes, a 10.0% annual
increase in the per capita cost of covered health care benefits was assumed for
2002. The rate was assumed to decrease gradually to 5.3% for 2007 and remain at
that level thereafter. A one-percentage-point change in the assumed health care
cost trend rates would have the following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
--------------- --------------
(in millions)
Effect on total of service and interest cost components....................... $ 0.5 $ (0.5)
Effect on the postretirement benefit obligation............................... $ 8.6 $ (7.8)
During 2001, 2000 and 1999, expense with respect to domestic and
foreign defined contribution plans (primarily related to various groups of
hourly employees) totaled $16.4 million, $17.6 million and $17.5 million,
respectively.
NOTE 14: COOPER SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLANS
All full-time domestic employees, except for certain bargaining unit
employees, are eligible to participate in the Cooper Retirement Savings and
Stock Ownership Plan ("CO-SAV"). Under the terms of the Plan, employee savings
deferrals are partially matched with contributions by Cooper of Common stock
consisting of either an allocation of shares in Cooper's Employee Stock
Ownership Plan ("ESOP") or treasury shares issued to the ESOP.
F-19
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The ESOP purchased Cooper Common stock which was financed through external
borrowings and loans from Cooper. The external ESOP debt matured in July 1999
and was fully repaid. The purchases funded by loans between the ESOP and Cooper
were treated as eliminated intercompany loans for financial statement purposes.
These intercompany loans were paid in full during 2001. Cooper made annual
contributions to the ESOP to fund the payment of principal and interest. As the
debt was repaid, unallocated shares were allocated to CO-SAV participants to
satisfy Cooper's matching obligation or to replace dividends on allocated shares
with Cooper Common shares in years prior to 2000.
Dividends paid on unallocated ESOP shares of $0.1 million, $0.5 million
and $1.0 million during 2001, 2000 and 1999, respectively, were used to reduce
the amount of cash required to fund principal and interest payments on ESOP
debt. Dividends paid on allocated ESOP shares of $3.8 million during 1999 were
used to pay additional principal and interest payments in order to allocate
shares equivalent to the dividend amount to participants in the CO-SAV plan.
Cooper contributed an additional $8.4 million, $9.6 million and $13.5 million in
cash to the ESOP during 2001, 2000 and 1999, respectively, to fund principal and
interest payments on ESOP debt.
The number of allocated, committed to be allocated, and unallocated
ESOP shares at December 31, 2001 and 2000 is summarized below.
Shares Purchased Shares Purchased
Prior to 1994 In 1994
---------------------- --------------------
2001 2000 2001 2000
--------- --------- -------- -------
Allocated to CO-SAV participant accounts... 2,950,973 2,783,473 928,837 928,837
Committed to be allocated.................. -- 1,111 -- --
Unallocated................................ -- 166,389 -- --
Shares purchased by the ESOP prior to 1994 are accounted for in
accordance with Statement of Position 76-3, Accounting Practices for Certain
Employee Stock Ownership Plans and Emerging Issues Task Force Issue 89-8,
Expense Recognition for Employee Stock Ownership Plans. Compensation expense is
equal to Cooper's CO-SAV matching obligation, adjusted for the difference
between the fair market value and cost of the shares committed to be allocated.
Compensation expense is reduced by the amount of dividends paid on unallocated
ESOP shares available for future matching. All shares issued to the ESOP are
considered outstanding for purposes of computing earnings per share.
Shares purchased by the ESOP in 1994 are accounted for in accordance
with Statement of Position 93-6, Employers' Accounting for Employee Stock
Ownership Plans ("SOP 93-6"). SOP 93-6 was effective for fiscal years beginning
after December 15, 1993. Compensation expense is recognized at the fair value of
the shares committed to be allocated which is equal to the amount of Cooper's
CO-SAV matching obligation. Unearned employee stock ownership plan compensation
is credited as shares are committed to be allocated based on the cost of the
shares to the ESOP. The difference between the fair market value and cost of the
shares committed to be allocated is recorded as an adjustment to capital in
excess of par value. Dividends paid on unallocated shares are recorded as a
reduction of ESOP debt, accrued interest or accrued employee benefits.
Unallocated shares are not treated as outstanding in the earnings per share
computation.
Compensation expense for the CO-SAV plan and the ESOP was $23.0
million, $20.2 million and $18.6 million in 2001, 2000 and 1999, respectively.
F-20
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
INDUSTRY SEGMENTS
Cooper's operations consist of two segments: Electrical Products and
Tools & Hardware. Markets for Cooper's products and services are worldwide, with
the United States being the largest market.
The Electrical Products segment manufactures, markets and sells
electrical and circuit protection products, including fittings, support systems,
enclosures, wiring devices, plugs, receptacles, lighting fixtures, fuses,
emergency lighting, fire detection systems and security products for use in
residential, commercial and industrial construction, maintenance and repair
applications. The segment also manufactures, markets and sells products for use
by utilities and in industry for electrical power transmission and distribution.
The Tools & Hardware segment manufactures, markets and sells hand tools
for industrial, construction and consumer markets; automated assembly systems
for industrial markets and electric and pneumatic industrial power tools for
general industry, primarily automotive and aerospace manufacturers.
The performance of businesses are evaluated at the segment level and
resources are allocated among the segments. The Cooper executive responsible for
each segment further allocates resources between the various division operating
units that compose the segment and, in international markets, determines the
integration of product lines and operations across division operating units. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies in Note 1. Cooper manages cash, debt
and income taxes centrally. Accordingly, Cooper evaluates performance of its
segments and operating units based on operating earnings exclusive of financing
activities and income taxes. Nonrecurring and unusual items are excluded from
the evaluations. The segments are managed separately because they manufacture
and distribute distinct products. Intersegment sales and related receivables for
each of the years presented were insignificant.
Financial information by industry segment was as follows:
Revenues Operating Earnings Total Assets
Year Ended December 31, Year Ended December 31, Year Ended December 31,
------------------------------- ---------------------------- -------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
-------- --------- --------- ------- -------- ------- -------- -------- --------
(in millions)
Electrical Products......... $ 3,485.5 $ 3,659.2 $ 3,060.9 $ 437.0 $ 585.0 $ 516.7 $3,482.9 $3,660.9 $2,969.5
Tools & Hardware............ 724.0 800.7 808.0 68.6 97.7 97.9 816.3 844.8 897.8
--------- --------- -------- ----- ----- ----- ------- ------- -------
Total management reporting..$ 4,209.5 $ 4,459.9 $ 3,868.9 505.6 682.7 614.6 4,299.2 4,505.7 3,867.3
========= ========= ========
Segment nonrecurring and
unusual items........... (24.0) -- (4.5)
Net segment operating ------- ----- ------
earnings................ 481.6 682.7 610.1
General Corporate:
Nonrecurring gains
(charges)............... (50.1) -- 0.8
Expense................. (30.4) (32.5) (37.1)
Interest expense, net....... (84.7) (100.3) (55.2)
Consolidated income -------- -------- --------
from continuing operations
before income taxes .... $ 316.4 $ 549.9 $ 518.6
Corporate assets............ ======= ======== ======== 312.2 283.6 276.1
------- -------- --------
Consolidated assets......... $4,611.4 $4,789.3 $4,143.4
======== ======== ========
F-21
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Electrical Tools & Consolidated
Products Hardware Corporate Total
--------- --------- ---------- ------------
(in millions)
2001
Depreciation................... $ 91.9 $ 29.6 $ 4.2 $ 125.7
Goodwill amortization.......... 51.5 9.2 -- 60.7
Nonrecurring charges........... 24.0 -- 50.1 74.1
Capital expenditures........... 80.8 25.3 9.0 115.1
Investment in
unconsolidated affiliates.. 17.0 -- -- 17.0
2000
Depreciation................... $ 83.1 $ 30.7 $ 2.1 $ 115.9
Goodwill amortization.......... 49.1 9.4 -- 58.5
Capital expenditures........... 128.9 26.8 19.2 174.9
Investment in
unconsolidated affiliates.. 22.2 -- -- 22.2
1999
Depreciation................... $ 69.6 $ 29.4 $ 1.5 $ 100.5
Goodwill amortization.......... 37.7 9.4 -- 47.1
Nonrecurring gains............. -- -- 0.8 0.8
Nonrecurring charges........... 3.0 1.5 -- 4.5
Capital expenditures........... 117.5 36.5 11.8 165.8
Investment in
unconsolidated affiliates.. 11.4 -- -- 11.4
GEOGRAPHIC INFORMATION
Revenues and long-lived assets by country are summarized below. Revenues
are attributed to geographic areas based on the location of the assets producing
the revenues.
Revenues Long-Lived Assets
------------------------------------------- -------------------------------------------
2001 2000 1999 2001 2000 1999
----------- ----------- ------------ ------------ ----------- ------------
(in millions)
United States............... $ 3,240.9 $ 3,500.4 $ 2,944.5 $ 2,254.4 $ 2,319.2 $ 1,912.6
Germany..................... 218.8 180.0 223.1 121.3 135.0 149.5
United Kingdom.............. 224.6 232.6 179.4 367.7 404.8 443.9
Canada...................... 149.9 158.5 133.5 2.5 3.4 4.4
Mexico...................... 141.1 150.4 120.8 126.0 100.8 79.0
Other foreign countries..... 234.2 238.0 267.6 88.3 91.0 87.4
----------- ----------- ----------- ----------- ----------- -----------
$ 4,209.5 $ 4,459.9 $ 3,868.9 $ 2,960.2 $ 3,054.2 $ 2,676.8
=========== =========== =========== =========== =========== ===========
F-22
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
International revenues by destination, based on the location products
were delivered, were as follows by segment:
International Revenues
------------------------------------------------
2001 2000 1999
------------ ------------- ------------
(in millions)
Electrical Products.............................. $ 856.1 $ 881.0 $ 775.9
Tools & Hardware................................. 360.7 300.9 351.0
------------ ------------- ------------
$ 1,216.8 $ 1,181.9 $ 1,126.9
============ ============= ============
NOTE 16: FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES, CONCENTRATIONS OF CREDIT
RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On January 1, 2001, Cooper adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS No. 133"), as amended. SFAS No. 133 requires that all derivatives be
recognized as assets and liabilities and measured at fair value. For derivative
instruments that are not designated as hedges, the gain or loss on the
derivative is recognized in earnings currently. If the derivative is designated
as a fair value hedge, the gain or loss on the derivative and the offsetting
loss or gain on the hedged asset, liability or firm commitment is recognized in
earnings. For derivative instruments designated as a cash flow hedge, the
effective portion of the gain or loss on the derivative instrument is reported
as a component of accumulated nonowner changes in equity and reclassified into
earnings in the same period that the hedged transaction affects earnings. The
ineffective portion of the gain or loss is immediately recognized in earnings.
The cumulative effect of adopting the new standard was not material to Cooper's
2001 consolidated results of operations, financial position or cash flows.
Cooper enters into foreign currency forward exchange contracts and
commodity futures contracts to reduce the risks of adverse changes in foreign
exchange rates and commodity prices. Cooper does not enter into speculative
derivative transactions.
As a result of having sales, purchases and certain intercompany
transactions denominated in currencies other than the functional currencies used
by Cooper's businesses, Cooper is exposed to the effect of foreign exchange rate
changes on its cash flows and earnings. Cooper enters into foreign currency
forward exchange contracts to hedge significant foreign currency denominated
transactions for periods consistent with the terms of the underlying
transactions. Contracts generally have maturities that do not exceed one year.
Foreign currency forward exchange contracts executed to hedge a
recognized asset, liability or firm commitment are accounted for as fair value
hedges. The net gain on contracts designated as fair value hedges was not
material during 2001. Foreign currency forward exchange contracts executed to
hedge forecasted transactions are accounted for as cash flow hedges. The net
gain on contracts designated as cash flow hedges was not material in 2001.
Cooper also enters into certain foreign currency forward exchange contracts that
are not designated as hedges. These contracts are intended to reduce cash flow
volatility related to intercompany financing transactions.
Cooper enters into commodity futures contracts to reduce the volatility
of price fluctuations on a portion of its forecasted annual raw material
purchases. These instruments are designated as cash flow hedges. The net loss on
commodity futures contracts was not material in 2001.
F-23
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Gains or losses on derivative instruments are reported in the same line
item as the underlying hedged transaction in the consolidated statements of
income. At December 31, 2001, Cooper expects to reclassify $0.3 million of net
losses on derivative instruments designated as cash flow hedges from accumulated
nonowner changes in equity to earnings during the next twelve months. The amount
of discontinued cash flow hedges during 2001 was not material.
The table below summarizes, by currency, the U. S. dollar equivalent
contractual amounts of Cooper's forward exchange contracts at December 31, 2001
and 2000.
December 31,
----------------
2001 2000
------ ------
(in millions)
British Pound Sterling.. $ 0.8 $17.6
Euro.................... 8.5 15.1
Mexican Peso............ 4.4 2.2
Swiss Franc............. 2.9 2.7
Australian Dollar....... -- 2.2
Norwegian Krone......... 1.5 --
Other................... 2.0 1.2
------ ------
$20.1 $41.0
======= ======
OTHER INSTRUMENTS
In the normal course of business, Cooper executes letters of credit,
performance bonds and other guarantees that ensure Cooper's performance or
payment to third parties that are not reflected in the consolidated balance
sheets. The aggregate notional value of these instruments was $112.0 million and
$111.9 million at December 31, 2001 and 2000, respectively. In the past, no
significant claims have been made against these financial instruments.
Management believes the likelihood of demand for payment under these
instruments is minimal and expects no material losses to occur in connection
with these instruments.
The following transactions were implemented to partially align Cooper's
interest rate exposure profile with its short term interest rate expectations
in an economically efficient manner that is consistent with its tax position.
During 2001, Cooper sold at a premium U.S. Treasury securities due
November 2002. Cooper obtained these securities pursuant to a repurchase
agreement containing provisions that limit Cooper's interest rate exposure under
this agreement to a maximum cost of $7.0 million. The repurchase agreement will
be settled immediately prior to the maturity of the securities. Settlement of
this transaction will not require any financing by Cooper and this transaction
does not create an asset or liability, other than as described above. The face
amount of the securities was $1.0 billion.
Also during 2001, Cooper purchased at a discount Federal Home Loan
Mortgage Corporation Notes due February 2003 and immediately transferred these
notes pursuant to a securities loan agreement. Subsequently, Cooper eliminated
any potential cost under the securities loan agreement and realized a gain of
approximately $1.9 million. The securities loan agreement will be settled
immediately prior to the maturity of the notes. Settlement of this transaction
will not require any financing by Cooper and this transaction does not create a
liability. The face amount of the notes was $480 million. In 1999 Cooper entered
into a similar executory contract. Upon settlement of the contract in 2000,
Cooper realized a $7.3 million cost, its maximum exposure under the 1999
executory contract.
F-24
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are
limited due to the wide variety of customers as well as their dispersion across
many different geographic areas with no one customer receivable exceeding 4.8%
of accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS OTHER THAN DERIVATIVES
Cooper's financial instruments other than derivative instruments, consist
primarily of cash and cash equivalents, trade receivables, trade payables and
debt instruments. The book values of cash and cash equivalents, trade
receivables and trade payables are considered to be representative of their
respective fair values. Cooper had approximately $1.3 billion and $1.5 billion
of debt instruments at December 31, 2001 and 2000, respectively. The book value
of these instruments was approximately equal to fair value at December 31, 2001
and 2000.
NOTE 17: SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
------------------------
2000 1999
-------- ----------
(in millions)
Assets acquired and liabilities assumed
or incurred from the acquisition of
businesses:
Fair value of assets acquired.......................... $684.0 $522.9
Liabilities assumed or incurred........................ (103.6) (88.3)
------ -----
Cash used to acquire businesses,
net of cash acquired.............................. $580.4 $434.6
====== ======
NOTE 18: NET INCOME PER COMMON SHARE
Basic Diluted
----------------------------------- ------------------------------------
Year Ended December 31, Year Ended December 31,
----------------------------------- ------------------------------------
2001 2000 1999 2001 2000 1999
--------- --------- --------- ----------- ---------- ---------
($ in millions, shares in thousands)
Income from continuing operations................ $ 261.3 $ 357.4 $ 331.9 $ 261.3 $ 357.4 $ 331.9
Charge from discontinued operations.............. (30.0) -- -- (30.0) -- --
--------- --------- --------- --------- --------- ---------
Net income applicable to Common stock............ $ 231.3 $ 357.4 $ 331.9 $ 231.3 $ 357.4 $ 331.9
========= ========= ========= ========= ========= =========
Weighted average Common shares outstanding....... 94,008 93,524 94,046 94,008 93,524 94,046
========= ========= =========
Incremental shares from assumed conversions:
Options, performance-based stock awards
and other employee awards................ 869 626 896
Weighted average Common shares and --------- --------- ---------
Common share equivalents..................... 94,877 94,150 94,942
========= ========= =========
Options and employee awards are not considered in the calculations if the effect
would be antidilutive.
F-25
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: UNAUDITED QUARTERLY OPERATING RESULTS
2001 (by quarter)
-------------------------------------------------
1 2 3 4
--------- --------- --------- ----------
(in millions, except per share data)
Revenues............................................... $ 1,095.1 $ 1,073.0 $ 1,051.8 $ 989.6
Cost of sales.......................................... 768.9 744.7 730.5 699.8
Selling and administrative expenses.................... 199.5 186.0 175.3 168.9
Goodwill amortization.................................. 14.8 15.3 15.3 15.3
Nonrecurring charges................................... -- -- -- 74.1
Interest expense, net.................................. 25.1 22.4 18.8 18.4
--------- --------- --------- ----------
Income from continuing operations before income taxes.. 86.8 104.6 111.9 13.1
Income tax expense (benefit)........................... 30.4 36.6 37.6 (49.5)
--------- --------- --------- ----------
Income from continuing operations...................... 56.4 68.0 74.3 62.6
Charge related to discontinued operations.............. -- -- -- (30.0)
--------- --------- --------- ----------
Net income............................................. $ 56.4 $ 68.0 $ 74.3 $ 32.6
========= ========= ========= =========
Income per Common share
Basic:
Income from continuing operations...................... $ .60 $ .72 $ .79 $ .67
Charge from discontinued operations.................... -- -- -- (.32)
--------- --------- --------- ----------
Net income............................................. $ .60 $ .72 $ .79 $ .35
========= ========= ========= =========
Diluted:
Income from continuing operations...................... $ .60 $ .72 $ .78 $ .66
Charge from discontinued operations.................... -- -- -- (.32)
--------- --------- --------- ----------
Net income............................................. $ .60 $ .72 $ .78 $ .34
========= ========= ========= =========
2000 (by quarter)
-------------------------------------------------
1 2 3 4
---------- --------- ---------- ----------
(in millions, except per share data)
Revenues............................................... $ 1,038.9 $ 1,168.2 $ 1,145.8 $ 1,107.0
Cost of sales.......................................... 701.7 794.5 773.1 749.0
Selling and administrative expenses.................... 176.4 189.4 188.2 178.9
Goodwill amortization.................................. 13.4 14.7 15.4 15.0
Interest expense, net.................................. 18.3 26.6 28.6 26.8
---------- --------- ---------- ----------
Income before income taxes............................. 129.1 143.0 140.5 137.3
Income taxes........................................... 45.2 50.1 49.1 48.1
---------- --------- ---------- ----------
Net income............................................. $ 83.9 $ 92.9 $ 91.4 $ 89.2
========== ========= ========== ==========
Income per Common share
Basic.................................................. $ .89 $ 1.00 $ .98 $ .95
Diluted................................................ $ .89 $ .99 $ .97 $ .95
F-26
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: OTHER EVENTS
On August 1, 2001, Danaher Corporation ("Danaher") announced it had made
an unsolicited proposal to Cooper for a merger through a stock and cash
transaction valued by Danaher at $54 to $58 per Cooper share, subject to
conducting due diligence procedures. On August 8, 2001, Cooper's Board of
Directors unanimously rejected Danaher's proposal and authorized management to
explore all strategic alternatives that would maximize shareholder value
including mergers, sales, strategic alliances, acquisitions or other similar
strategic alternatives.
On February 13, 2002, Cooper announced that it completed its strategic
alternatives review process. After careful review of all the available
alternatives with management and its financial advisors, Cooper's Board of
Directors concluded that it is in the best interests of Cooper's shareholders to
move forward with its plan to reincorporate in Bermuda, as previously announced
on June 11, 2001. Cooper's announcement noted that the strategic alternatives
review process was very careful, deliberate and complete in analyzing how best
to maximize shareholder value; however, as a result of intervening circumstances
including the tragic events of September 11, 2001, the bankruptcy of
Federal-Mogul and a very difficult business environment, Cooper received no
definitive proposals to acquire the Company as a whole or in parts.
On May 22, 2002, Cooper completed its reorganization plan and changed its
place of incorporation from Ohio to Bermuda. The reorganization was effected
through the merger of Cooper Mergerco, Inc., an Ohio corporation, into Cooper.
Cooper was the surviving company in the merger and became an indirect,
wholly-owned subsidiary of Cooper Industries, Ltd. ("Cooper Bermuda"). All
outstanding shares of Cooper common stock were automatically converted to Cooper
Bermuda Class A common shares. Cooper Bermuda and its subsidiaries continue to
conduct the business previously conducted by Cooper and its subsidiaries. The
reorganization will be accounted for as a reorganization of entities under
common control and accordingly, does not result in changes in the historical
consolidated carrying amounts of assets, liabilities and shareholders' equity.
F-27
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21: CONSOLIDATING FINANCIAL INFORMATION
As a result of the May 22, 2002 reorganization, Cooper Bermuda fully and
unconditionally guaranteed the registered debt securities of Cooper, its wholly
owned indirect subsidiary. The following condensed consolidating financial
statements present separate financial information for Cooper and its other
subsidiaries. Investments in subsidiaries are presented using the equity method
of accounting.
Consolidating Income Statements
Year Ended December 31, 2001
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
---------------- ---------------- ---------------- ---------------
Revenues.......................................... $ 308.0 $ 3,920.4 $ (18.9) $ 4,209.5
Cost of sales..................................... 188.4 2,774.4 (18.9) 2,943.9
Selling and administrative expenses............... 84.2 645.5 -- 729.7
Goodwill amortization............................. 1.3 59.4 -- 60.7
Nonrecurring charges.............................. 53.7 20.4 -- 74.1
Interest expense, net............................. 63.2 21.5 -- 84.7
Equity in earnings of subsidiaries, net of tax.... 333.1 -- (333.1) --
Intercompany income (expense).................... (123.2) 123.2 -- --
---------------- ---------------- ---------------- ---------------
Income from continuing operations before
income taxes............................. 127.1 522.4 (333.1) 316.4
Income tax expense (benefit)...................... (134.2) 189.3 -- 55.1
---------------- ---------------- ---------------- ---------------
Income from continuing operations............ 261.3 333.1 (333.1) 261.3
Charge related to discontinued operations,
net of income taxes.......................... 30.0 -- -- 30.0
---------------- ---------------- ---------------- ---------------
Net income.................................... $ 231.3 $ 333.1 $ (333.1) $ 231.3
================ ================ ================ ===============
Year Ended December 31, 2000
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
---------------- ---------------- ---------------- ---------------
Revenues.......................................... $ 301.1 $ 4,179.4 $ (20.6) $ 4,459.9
Cost of sales..................................... 179.7 2,859.2 (20.6) 3,018.3
Selling and administrative expenses............... 83.6 649.3 -- 732.9
Goodwill amortization............................. 1.3 57.2 -- 58.5
Interest expense, net............................. 91.7 8.6 -- 100.3
Equity in earnings of subsidiaries, net of tax.... 370.5 -- (370.5) --
Intercompany income (expense).................... 21.2 (21.2) -- --
---------------- ---------------- ---------------- ---------------
Income before income taxes................... 336.5 583.9 (370.5) 549.9
Income tax expense (benefit)...................... (20.9) 213.4 -- 192.5
---------------- ---------------- ---------------- ---------------
Net income.................................... $ 357.4 $ 370.5 $ (370.5) $ 357.4
================ ================ ================ ===============
F-28
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Income Statements
Year Ended December 31, 1999
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
---------------- ----------------- ---------------- -----------------
Revenues........................................ $ 300.1 $ 3,587.8 $ (19.0) $ 3,868.9
Cost of sales................................... 179.3 2,443.1 (19.0) 2,603.4
Selling and administrative expenses............. 89.5 551.4 -- 640.9
Goodwill amortization........................... 1.3 45.8 -- 47.1
Nonrecurring charges............................ 0.2 3.5 -- 3.7
Interest expense, net........................... 48.7 6.5 -- 55.2
Equity in earnings of subsidiaries, net of tax.. 343.3 -- (343.3) --
Intercompany income (expense).................. (9.4) 9.4 -- --
---------------- ----------------- ---------------- -----------------
Income before income taxes................. 315.0 546.9 (343.3) 518.6
Income tax expense (benefit).................... (16.9) 203.6 -- 186.7
---------------- ----------------- ---------------- -----------------
Net income.................................. $ 331.9 $ 343.3 $ (343.3) $ 331.9
================ ================= ================ =================
F-29
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Balance Sheets
December 31, 2001
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
----------------- ---------------- ---------------- -----------------
Cash and cash equivalents....................... $ 2.8 $ 8.7 $ -- $ 11.5
Receivables..................................... 74.2 702.9 -- 777.1
Intercompany receivables........................ -- 561.9 (561.9) --
Inventories..................................... 27.1 643.8 -- 670.9
Deferred income taxes and other
current assets.............................. 133.2 58.5 -- 191.7
----------------- ---------------- ---------------- -----------------
Total current assets..................... 237.3 1,975.8 (561.9) 1,651.2
----------------- ---------------- ---------------- -----------------
Property, plant and equipment, less
accumulated depreciation..................... 65.3 761.5 -- 826.8
Goodwill........................................ 41.4 1,917.3 -- 1,958.7
Investment in subsidiaries...................... 7,464.2 -- (7,464.2) --
Intercompany notes receivable................... 79.6 3,969.0 (4,048.6) --
Deferred income taxes and other
noncurrent assets............................ 178.2 (3.5) -- 174.7
----------------- ---------------- ---------------- -----------------
Total assets............................. $ 8,066.0 $ 8,620.1 $ (12,074.7) $ 4,611.4
================= ================ ================ =================
Short-term debt................................. $ 62.0 $ 70.9 $ -- $ 132.9
Accounts payable................................ 118.4 283.0 -- 401.4
Accrued liabilities............................. 241.9 269.0 -- 510.9
Intercompany payables........................... 561.9 -- (561.9) --
Current maturities of long-term debt............ 60.2 0.7 -- 60.9
----------------- ---------------- ---------------- -----------------
Total current liabilities................ 1,044.4 623.6 (561.9) 1,106.1
----------------- ---------------- ---------------- -----------------
Long-term debt.................................. 799.6 307.4 -- 1,107.0
Intercompany notes payable...................... 3,969.0 79.6 (4,048.6) --
Other long-term liabilities..................... 229.8 145.3 -- 375.1
----------------- ---------------- ---------------- -----------------
Total liabilities.......................... 6,042.8 1,155.9 (4,610.5) 2,588.2
----------------- ---------------- ---------------- -----------------
Common stock.................................... 615.0 141.0 (141.0) 615.0
Capital in excess of par value.................. 646.0 6,420.8 (6,420.8) 646.0
Retained earnings............................... 2,325.0 1,112.3 (1,112.3) 2,325.0
Common stock held in treasury, at cost.......... (1,435.0) -- -- (1,435.0)
Accumulated other nonowner changes
in equity.................................. (127.8) (209.9) 209.9 (127.8)
----------------- ---------------- ---------------- -----------------
Total shareholders' equity............... 2,023.2 7,464.2 (7,464.2) 2,023.2
----------------- ---------------- ---------------- -----------------
Total liabilities and shareholders' equity $ 8,066.0 $ 8,620.1 $ (12,074.7) $ 4,611.4
================= ================ ================ =================
F-30
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Balance Sheets
December 31, 2000
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
---------------- --------------- ---------------- ---------------
Cash and cash equivalents......................... $ -- $ 26.4 $ -- $ 26.4
Receivables....................................... 45.7 783.1 -- 828.8
Intercompany receivables.......................... -- 2,044.5 (2,044.5) --
Inventories....................................... 22.5 684.4 -- 706.9
Deferred income taxes and other current assets.... 144.0 29.0 -- 173.0
---------------- --------------- ---------------- ---------------
Total current assets....................... 212.2 3,567.4 (2,044.5) 1,735.1
---------------- --------------- ---------------- ---------------
Property, plant and equipment, less
accumulated depreciation....................... 78.0 792.4 -- 870.4
Goodwill.......................................... 42.7 1,970.8 -- 2,013.5
Investment in subsidiaries........................ 6,841.7 -- (6,841.7) --
Intercompany notes receivable..................... 89.3 1,735.7 (1,825.0) --
Deferred income taxes and other
noncurrent assets............................. 147.7 22.6 -- 170.3
---------------- --------------- ---------------- ---------------
Total assets............................... $ 7,411.6 $ 8,088.9 $ (10,711.2) $ 4,789.3
================ =============== ================ ===============
Short-term debt................................... $ 92.0 $ 74.1 $ -- $ 166.1
Accounts payable.................................. 119.1 351.0 -- 470.1
Accrued liabilities............................... 225.4 260.9 -- 486.3
Intercompany payables............................. 2,044.5 -- (2,044.5) --
Current maturities of long-term debt.............. 50.8 0.3 -- 51.1
---------------- --------------- ---------------- ---------------
Total current liabilities.................. 2,531.8 686.3 (2,044.5) 1,173.6
---------------- --------------- ---------------- ---------------
Long-term debt.................................... 981.0 319.8 -- 1,300.8
Intercompany notes payable........................ 1,735.7 89.3 (1,825.0) --
Other long-term liabilities....................... 258.9 151.8 -- 410.7
---------------- --------------- ---------------- ---------------
Total liabilities............................ 5,507.4 1,247.2 (3,869.5) 2,885.1
---------------- --------------- ---------------- ---------------
Common stock...................................... 615.0 132.0 (132.0) 615.0
Capital in excess of par value.................... 663.3 5,170.2 (5,170.2) 663.3
Retained earnings................................. 2,225.0 1,739.6 (1,739.6) 2,225.0
Common stock held in treasury, at cost............ (1,470.0) -- -- (1,470.0)
Unearned employee stock ownership
plan compensation............................. (8.6) -- -- (8.6)
Accumulated other nonowner changes in equity...... (120.5) (200.1) 200.1 (120.5)
---------------- --------------- ---------------- ---------------
Total shareholders' equity................. 1,904.2 6,841.7 (6,841.7) 1,904.2
---------------- --------------- ---------------- ---------------
Total liabilities and shareholders' equity. $ 7,411.6 $ 8,088.9 $ (10,711.2) $ 4,789.3
================ =============== ================ ===============
F-31
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Statements of Cash Flows
Year Ended December 31, 2001
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
---------------- --------------- ---------------- ---------------
Net cash provided by (used in)
operating activities............................ $ (110.1) $ 532.5 $ -- $ 422.4
Cash flows from investing activities:
Capital expenditures............................ (13.9) (101.2) -- (115.1)
Investments in affiliates....................... (298.5) -- 298.5 --
Loans to affiliates............................. 9.7 (292.2) 282.5 --
Dividends from subsidiaries..................... 16.8 -- (16.8) --
Other........................................... -- 16.5 -- 16.5
---------------- --------------- ---------------- ---------------
Net cash used in investing activities........ (285.9) (376.9) 564.2 (98.6)
Cash flows from financing activities:
Proceeds from issuances of debt................. 130.0 6.9 -- 136.9
Repayments of debt.............................. (332.1) (11.1) -- (343.2)
Borrowings from affiliates...................... 292.2 (9.7) (282.5) --
Other intercompany financing activities......... 441.0 (441.0) -- --
Dividends....................................... (131.3) -- -- (131.3)
Dividends paid to parent........................ -- (16.8) 16.8 --
Acquisition of treasury shares.................. (42.0) -- -- (42.0)
Issuance of stock............................... -- 298.5 (298.5) --
Employee stock plan activity and other.......... 41.0 -- -- 41.0
---------------- --------------- ---------------- ---------------
Net cash provided by (used in)
financing activities...................... 398.8 (173.2) (564.2) (338.6)
Effect of exchange rate changes on
cash and cash equivalents.................... -- (0.1) -- (0.1)
---------------- --------------- ---------------- ---------------
Increase (decrease) in cash and cash
equivalents.................................. 2.8 (17.7) -- (14.9)
Cash and cash equivalents, beginning of year.... -- 26.4 -- 26.4
---------------- --------------- ---------------- ---------------
Cash and cash equivalents, end of year.......... $ 2.8 $ 8.7 $ -- $ 11.5
================ =============== ================ ===============
F-32
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Statements of Cash Flows
Year Ended December 31, 2000
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
---------------- --------------- ---------------- ---------------
Net cash provided by (used in)
operating activities............................ $ (30.8) $ 533.4 $ -- $ 502.6
Cash flows from investing activities:
Cash paid for acquired businesses............... -- (580.4) -- (580.4)
Capital expenditures............................ (18.3) (156.6) -- (174.9)
Loans to affiliates............................. 24.9 (232.1) 207.2 --
Dividends from subsidiaries..................... 31.5 -- (31.5) --
Other........................................... (5.0) 16.4 5.0 16.4
---------------- --------------- ---------------- ---------------
Net cash provided by (used in)
investing activities..................... 33.1 (952.7) 180.7 (738.9)
Cash flows from financing activities:
Proceeds from issuances of debt................. 615.8 262.7 -- 878.5
Repayments of debt.............................. (473.3) (1.6) -- (474.9)
Borrowings from affiliates...................... 232.1 (24.9) (207.2) --
Other intercompany financing activities........ (211.7) 211.7 -- --
Dividends....................................... (130.6) -- -- (130.6)
Dividends paid to parent........................ -- (31.5) 31.5 --
Acquisition of treasury shares.................. (39.3) -- -- (39.3)
Employee stock plan activity and other.......... 1.9 5.0 (5.0) 1.9
---------------- --------------- ---------------- ---------------
Net cash provided by (used in)
financing activities...................... (5.1) 421.4 (180.7) 235.6
Effect of exchange rate changes on
cash and cash equivalents.................... -- 0.2 -- 0.2
---------------- --------------- ---------------- ---------------
Increase (decrease) in cash and cash
equivalents.................................. (2.8) 2.3 -- (0.5)
Cash and cash equivalents, beginning of year.... 2.8 24.1 -- 26.9
---------------- --------------- ---------------- ---------------
Cash and cash equivalents, end of year.......... $ -- $ 26.4 $ -- $ 26.4
================ =============== ================ ===============
F-33
COOPER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consolidating Statements of Cash Flows
Year Ended December 31, 1999
(in millions)
Other Consolidating
Cooper Subsidiaries Adjustments Total
---------------- --------------- ---------------- --------------
Net cash provided by operating activities.......... $ 76.1 $ 325.8 $ -- $ 401.9
Cash flows from investing activities:
Cash paid for acquired businesses................ -- (434.6) -- (434.6)
Capital expenditures............................. (18.6) (147.2) -- (165.8)
Proceeds from disposition of businesses.......... 149.1 -- -- 149.1
Investments in affiliates........................ (155.6) -- 155.6 --
Loans to affiliates.............................. 56.8 (43.5) (13.3) --
Dividends from subsidiaries...................... 50.3 -- (50.3) --
Other............................................ 2.3 8.9 -- 11.2
---------------- --------------- ---------------- --------------
Net cash provided by (used in)
investing activities...................... 84.3 (616.4) 92.0 (440.1)
Cash flows from financing activities:
Proceeds from issuances of debt.................. 244.4 6.5 -- 250.9
Repayments of debt............................... (64.5) (4.5) -- (69.0)
Borrowings from affiliates....................... 43.5 (56.8) 13.3 --
Other intercompany financing activities.......... (250.8) 250.8 -- --
Dividends........................................ (124.4) -- -- (124.4)
Dividends paid to parent......................... -- (50.3) 50.3 --
Acquisition of treasury shares................... (44.0) -- -- (44.0)
Issuance of stock................................ -- 155.6 (155.6) --
Employee stock plan activity and other........... 30.7 -- -- 30.7
---------------- --------------- ---------------- --------------
Net cash provided by (used in)
financing activities....................... (165.1) 301.3 (92.0) 44.2
Effect of exchange rate changes on
cash and cash equivalents..................... -- 0.5 -- 0.5
---------------- --------------- ---------------- --------------
Increase (decrease) in cash and cash
equivalents................................... (4.7) 11.2 -- 6.5
Cash and cash equivalents, beginning of year..... 7.5 12.9 -- 20.4
---------------- --------------- ---------------- --------------
Cash and cash equivalents, end of year........... $ 2.8 $ 24.1 $ -- $ 26.9
================ =============== ================ ==============
F-34
[Cooper Logo]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Cooper Industries, Ltd. is a Bermuda company. Section 98 of the Companies Act of
1981 of Bermuda provides generally that a Bermuda company may indemnify its
directors, officers and auditors against any liability which by virtue of
Bermuda law otherwise would be imposed on them, except in cases where such
liability arises from fraud or dishonesty of which such director, officer or
auditor may be guilty in relation to the company. Section 98 further provides
that a Bermuda company may indemnify its directors, officers and auditors
against any liability incurred by them in defending any proceedings, whether
civil or criminal, in which judgment is awarded in their favor or they are
acquitted or in which they are acquitted or granted relief by the Supreme Court
of Bermuda in certain proceedings arising under Section 281 of the Companies Act
of 1981 of Bermuda. Cooper Industries, Ltd. has adopted provisions in its
Bye-Laws providing that it shall indemnify its officers and directors to the
maximum extent permitted under this Act and its Directors' and Officers'
Liability Insurance Policy provides for insurance regarding certain activities
of the directors and officers of Cooper Industries, Ltd. and its subsidiaries.
In addition, Cooper Industries, Ltd. has entered into indemnification agreements
with its directors and certain executive officers. The indemnification
agreements contain provisions for indemnification against expenses, judgments,
fines and settlements in connection with threatened or pending litigation,
inquiries or investigations that arise out of the director's or officer's acts
or omission in his or her capacity as a director or officer of Cooper
Industries, Ltd.
Cooper Industries, Inc. is an Ohio corporation and an indirect subsidiary of
Cooper Industries, Ltd. Section 1701.13 of the Ohio General Corporation Law
contains detailed provisions for indemnification of directors and officers of
Ohio corporations against expenses, judgments, fines and settlements in
connection with litigation. As a general matter, Ohio law permits such
indemnification if such individuals acted in good faith, in a manner reasonably
believed to be in or not opposed to the best interests of the company and, with
respect to any criminal action or proceeding, had no reason to believe their
conduct was illegal. Cooper Industries, Inc.'s Articles of Incorporation provide
for indemnification consistent with that permitted by Ohio law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.0 Purchase Agreement dated as of June 17, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd., and J.P. Morgan
Securities Inc. and Banc of America Securities LLC, as the
representatives of the several initial purchasers described
therein (incorporated by reference to Exhibit 1 of Cooper
Industries, Ltd.'s Form 10-Q for the quarter ended June 30,
2002).
2.0 Agreement and Plan of Merger among Cooper Industries, Inc.,
Cooper Mergerco, Inc. and Cooper Industries, Ltd.
(incorporated by reference to Annex I to the proxy
statement/prospectus contained in Cooper Industries, Ltd.'s
Registration Statement on Form S-4, Registration No.
333-62740).
</Table>
II-1
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1 Form of Indenture dated as of January 15, 1990, between
Cooper and The Chase Manhattan Bank (National Association),
as Trustee (incorporated by reference to Exhibit 4(a) to
Cooper's Registration Statement on Form S-3, Registration
No. 33-33011).
4.2 First Supplemental Indenture dated as of May 15, 2002 among
Cooper Industries, Inc., Cooper Industries, Ltd. and
JPMorgan Chase Bank, as Trustee (incorporated by reference
to Exhibit 4.3 of Cooper Industries, Ltd.'s Form 10-Q for
the quarter ended June 30, 2002).
4.3 Second Supplemental Indenture dated as of June 21, 2002
among Cooper Industries, Inc., Cooper Industries, Ltd. and
JPMorgan Chase Bank, as Trustee (incorporated by reference
to Exhibit 4.4 of Cooper Industries, Ltd.'s Form 10-Q for
the quarter ended June 30, 2002).
4.4 Registration Rights Agreement dated as of June 21, 2002
among Cooper Industries, Inc., Cooper Industries, Ltd., and
J.P. Morgan Securities Inc. and Banc of America Securities
LLC, as the representatives of the several initial
purchasers described therein (incorporated by reference to
Exhibit 4.5 of Cooper Industries, Ltd.'s Form 10-Q for the
quarter ended June 30, 2002).
5.1 Opinion of Diane K. Schumacher, Senior Vice President and
General Counsel of Cooper Industries, Inc., as to the
legality of securities being registered.
5.2 Opinion of Appleby, Spurling & Kempe as to the legality of
securities being registered.
12.0 Computation of Ratio of Earnings to Fixed Charges for the
calendar years 1997 through 2001 and for the six months
ended June 30, 2001 and June 30, 2002 (incorporated by
reference to Exhibit 12 of Cooper Industries, Ltd.'s Form
10-Q for the quarter ended June 30, 2002).
23.1 Consent of Diane K. Schumacher (included in Exhibit 5.1).
23.2 Consent of Appleby, Spurling & Kempe (included in Exhibit
5.2).
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Bates White Ballentine
24.0 Powers of Attorney.
25.0 Statement of Eligibility and Qualification on Form T-1 of
JPMorgan Chase Bank.
99.0 Form of Letter of Transmittal and related documents.
</Table>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful
II-2
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Houston, Texas, on September 6, 2002.
COOPER INDUSTRIES, INC.
By: /s/ RALPH E. JACKSON, JR.
------------------------------------
Ralph E. Jackson, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on September 6, 2002.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ RALPH E. JACKSON, JR. President/Director
------------------------------------------------
Ralph E. Jackson, Jr.
/s/ D. BRADLEY MCWILLIAMS Senior Vice President and Chief Financial
------------------------------------------------ Officer/Director
D. Bradley McWilliams
/s/ JEFFREY B. LEVOS Vice President and Controller and Chief Accounting
------------------------------------------------ Officer
Jeffrey B. Levos
/s/ DIANE K. SCHUMACHER Director
------------------------------------------------
Diane K. Schumacher
</Table>
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Houston, Texas, on September 6, 2002.
COOPER INDUSTRIES, LTD.
By: /s/ H. JOHN RILEY, JR.
---------------------------------------
H. John Riley, Jr.
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on September 6, 2002, such persons constituting a majority of the board of
directors of the registrant.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ H. JOHN RILEY, JR. Director, Chairman, President and Chief Executive
------------------------------------------------ Officer
H. John Riley, Jr.
/s/ D. BRADLEY MCWILLIAMS Senior Vice President and Chief Financial Officer
------------------------------------------------
D. Bradley McWilliams
/s/ JEFFREY B. LEVOS Vice President and Controller and Chief Accounting
------------------------------------------------ Officer
Jeffrey B. Levos
*WARREN L. BATTS Director
------------------------------------------------
Warren L. Batts
*ROBERT M. DEVLIN Director
------------------------------------------------
Robert M. Devlin
*CLIFFORD J. GRUM Director
------------------------------------------------
Clifford J. Grum
*LINDA A. HILL Director
------------------------------------------------
Linda A. Hill
/s/ RALPH E. JACKSON, JR. Director
------------------------------------------------
Ralph E. Jackson, Jr.
*SIR RALPH H. ROBINS Director
------------------------------------------------
Sir Ralph H. Robins
*H. LEE SCOTT Director
------------------------------------------------
H. Lee Scott
*DAN F. SMITH Director
------------------------------------------------
Dan F. Smith
*GERALD B. SMITH Director
------------------------------------------------
Gerald B. Smith
*JAMES R. WILSON Director
------------------------------------------------
James R. Wilson
</Table>
*By /s/ DIANE K. SCHUMACHER
---------------------------------------------------------
Diane K. Schumacher, as Attorney-in-Fact
for each of the persons indicated
II-5
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.0 Purchase Agreement dated as of June 17, 2002 among Cooper
Industries, Inc., Cooper Industries, Ltd., and J.P. Morgan
Securities Inc. and Banc of America Securities LLC, as the
representatives of the several initial purchasers described
therein (incorporated by reference to Exhibit 1 of Cooper
Industries, Ltd.'s Form 10-Q for the quarter ended June 30,
2002).
2.0 Agreement and Plan of Merger among Cooper Industries, Inc.,
Cooper Mergerco, Inc. and Cooper Industries, Ltd.
(incorporated by reference to Annex I to the proxy
statement/prospectus contained in Cooper Industries, Ltd.'s
Registration Statement on Form S-4, Registration No.
333-62740).
4.1 Form of Indenture dated as of January 15, 1990, between
Cooper and The Chase Manhattan Bank (National Association),
as Trustee (incorporated by reference to Exhibit 4(a) to
Cooper's Registration Statement on Form S-3, Registration
No. 33-33011).
4.2 First Supplemental Indenture dated as of May 15, 2002 among
Cooper Industries, Inc., Cooper Industries, Ltd. and
JPMorgan Chase Bank, as Trustee (incorporated by reference
to Exhibit 4.3 of Cooper Industries, Ltd.'s Form 10-Q for
the quarter ended June 30, 2002).
4.3 Second Supplemental Indenture dated as of June 21, 2002
among Cooper Industries, Inc., Cooper Industries, Ltd. and
JPMorgan Chase Bank, as Trustee (incorporated by reference
to Exhibit 4.4 of Cooper Industries, Ltd.'s Form 10-Q for
the quarter ended June 30, 2002).
4.4 Registration Rights Agreement dated as of June 21, 2002
among Cooper Industries, Inc., Cooper Industries, Ltd., and
J.P. Morgan Securities Inc. and Banc of America Securities
LLC, as the representatives of the several initial
purchasers described therein (incorporated by reference to
Exhibit 4.5 of Cooper Industries, Ltd.'s Form 10-Q for the
quarter ended June 30, 2002).
5.1 Opinion of Diane K. Schumacher, Senior Vice President and
General Counsel of Cooper Industries, Inc., as to the
legality of securities being registered.
5.2 Opinion of Appleby, Spurling & Kempe as to the legality of
securities being registered.
12.0 Computation of Ratio of Earnings to Fixed Charges for the
calendar years 1997 through 2001 and for the six months
ended June 30, 2001 and June 30, 2002 (incorporated by
reference to Exhibit 12 of Cooper Industries, Ltd.'s Form
10-Q for the quarter ended June 30, 2002).
23.1 Consent of Diane K. Schumacher (included in Exhibit 5.1).
23.2 Consent of Appleby, Spurling & Kempe (included in Exhibit
5.2).
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Bates White Ballentine
24.0 Powers of Attorney.
25.0 Statement of Eligibility and Qualification on Form T-1 of
JPMorgan Chase Bank.
99.0 Form of Letter of Transmittal and related documents.
</Table>
II-6